So I follow the oil and gas industry and markets. For anyone that doesn't know, commodity markets mostly operate two different markets: futures and spot. Futures contracts are an agreement to deliver (or take delivery, depending on which side you're on) a certain quantity of a standardized commodity at a given date. Futures markets tend to be a mix of speculators (who are simply betting on price movements of the underlying) and traders who produce or want the underlying. The advantage of a futures contract is it can allow someone to hedge their costs and lock-in prices. All sorts of producers and industries use them for that.

Oil futures are standardized into several standard types (9 I think, I might be off). You will hear terms like West Texas crude and Brent. This refers to two main factors: the relative mix between lighter and heavier hydrocarbons (called the API gravity) in the oil as well as the sulfur content.

One side benefit of all this is discovery. It's a way of measuring sentiment. So if future oil prices rise, it indicates market sentiment is negative about the war and they further disruption is expected. When it looks like hostilities may end, the price drops.

But there's a problem: nobody trusts the market anymore. It's being manipulated as insiders are clearly frontrunning news with massive bets, sometimes minutes before news gets released. This has been happening with other markets too, most notably SPY futures. Markets cease to function once manipulation becomes widespread.

The future price is also called the paper price and another signal that the paper price is meaningless is that the spot or physical price for oil has skyrocketed well beyond any oil prices you might see in the news. For example, a few weeks ago, physical Dubai oil was nearing $180 per barrel. West Texas crude had a future price of $110 yet the physical price was $140+.

An issue here is that the physical price isn't easily discoverable. It's hidden behind subscription services that cost thousands so you only hear about it when it's reported on. But this means talking heads are reporting on $110 oil when it's really $150.

We saw a similar mismatch with the silver market at the end of last year. That market too was clearly being manipulated but rather than insiders, many (including myself) suspect it was the refiners and others who had lost with silver's massive rally and were doing everything to pop the bubble, including changing the exchange's liquidity ratios to force sales.

In previous years, some or all of these people would get investigated and prosecuted by the SEC for insider trading. That agency has been defanged by putting a pro-deregulation loyalist in charge but the bigger problem is that some or all of these people will be buying pardons before the president leaves office. And the president can no longer be prosecuted thanks to the Supreme Court inventing presidential immunity.

One source of American power is the control over the global financial system. All of this insider trading risks dismantling that. It's not hard to find people who are sitting out because they simply don't trust anything anymore. If this spreads to financial institutions and institutional traders, that's going to be a big problem.

So-called "prediction markets" (and crypto) are even less regulated than that. Unless you have insider knowledge or you're betting on something that isn't prone to insider information (and I honestly don't know what that would be), I'd stay away.

And these prediction markets are small fry. SPY futures are a significantly larger market. So is oil and gas. And Treasuries is order of magnitudes bigger than either of those. Yet some of those markets can't be trusted and I suspect this is only going to get worse.

I don't have any hope that anyone will ever be prosecuted for any of this.

Thank you for the thoughtful analysis. I'd echo that the deregulation and corruption of these markets has two impacts: 1) less "legitimate" (non-corrupt) capital flowing to these markets which may ultimately reduce the liquidity and value of the asstrs. 2) more speculative deployment of capital, which means that capital is used for making bets rather than uses for productive purpose (such as investing in legitimate investments that are productive for the economy.

Why would a insider invest in legitimate, productive investment when they can make outsized gains in betting markets or corrupt futures markets?

And yes, long term this will massively taint the US financial power and make economies like the UK more appealing.

> That agency has been defanged by putting a pro-deregulation loyalist in charge but the bigger problem is that some or all of these people will be buying pardons before the president leaves office. And the president can no longer be prosecuted thanks to the Supreme Court inventing presidential immunity.

This is not a "bigger problem".

> the president can no longer be prosecuted thanks to the Supreme Court inventing presidential immunity

In 2015, there were a hundred things you could've inserted into "The US cannot ___" or "The POTUS cannot ___", that have happened since. Things "can't" until they can.

> I don't have any hope that anyone will ever be prosecuted for any of this.

Agreed, but this is _solely and entirely_ due to a lack of will to do so, not because of any laws.

I find it very hard to understand why so many people and institutions are still participating in markets that are obviously full of insider trading. It's basically just giving money away to the insiders. Why do people do this?

As a tick jockey myself, reading futures markets are like reading tomorrow’s NYT headline. These markets portend events with uncanny accuracy.

Dumb point, but you said SEC. But they don't have authority over commodities, and aren't the rules different for them anyway?

Other than that, I think a lot of what you said was interesting.

What is a typical price difference between the paper and spot prices? 1% or 10%+ is common? In the past 24 hours, the futures price dropped a huge amount. Is the spot market dynamic enough that prices can get reflected so quickly? Where does it stand in the past few days?

It is also interesting to think about the game theory on how you respond to markets during volatility. If you are a producer or have excessive storage capacity - when do you sell? From my armchair position, it seems like conditions are only going to get worse. Do you hold back some reserves, hoping to cash in on a higher pay day in the future? Then you have to wonder how many might be doing the same.

> or example, a few weeks ago, physical Dubai oil was nearing $180 per barrel. West Texas crude had a future price of $110 yet the physical price was $140+.

Surely if this were true, gas prices would have risen more than they did.

>But this means talking heads are reporting on $110 oil when it's really $150.

It's pretty normal that futures differ from spot prices.

>In previous years, some or all of these people would get investigated and prosecuted by the SEC for insider trading.

But are there proofs that there is insider trading on oil futures and we know CTFC isn't investigating it?