How To Manipulate The Oil Market For Profit

The Importance of Timing

Trump’s announcement came Friday evening, after benchmark West Texas Intermediate crude oil futures had finished trading on CME Globex for the week. WTI trades nearly around the clock from Sunday evening through Friday afternoon, but once Friday’s session ends, the main futures market does not reopen until Sunday evening. CME itself notes that geopolitical events and changes in oil policy can dramatically affect world oil supply and prices.

Now consider the information advantage created by that timing.

Suppose a market participant knew several hours earlier precisely what Trump planned to announce after the market closed. That person would know that the president intended to publicly describe an agreement involving 65 billion barrels of oil and explicitly tell Americans that the deal would increase oil supplies and lower gasoline prices. Everyone else would receive that information only after the principal oil futures market had closed for the weekend.

Before the close, someone with advance knowledge could establish a position that would benefit from falling crude prices. The particular instrument isn’t the important point. Oil can be bought and sold through futures, options, swaps, forward arrangements and physical-market transactions. What matters is that one participant could make a decision with knowledge of a potentially significant event that the rest of the market did not possess.

Then the announcement hits. If traders believe it is bearish for oil, crude prices can gap down when the market reopens. The person who knew beforehand has an obvious advantage.

Again, that does not establish that anyone did this on Friday. It demonstrates why the timing of market-moving government announcements deserves scrutiny.

You Don’t Need the Announcement to Be Fundamentally Correct

There is another wrinkle that makes oil especially interesting. A statement does not necessarily have to change today’s physical supply to move today’s price.

Trump’s announcement is a good example. Venezuela unquestionably possesses enormous oil resources. But saying the United States suddenly has access to 65 billion barrels is very different from putting 65 billion barrels (or even a fraction of that amount) onto the market.

Venezuela’s industry has suffered from decades of underinvestment, deteriorating infrastructure and the loss of technical expertise. Much of its resource base consists of very heavy crude from the Orinoco Belt, which is more difficult to produce and process than conventional crude. The new agreement reportedly contemplates enormous amounts of private investment, but even supporters acknowledge that major increases in production could take years.

That means Friday’s announcement does not materially increase global oil production this weekend. It probably doesn’t materially increase it next month, either. But financial markets trade expectations.

If traders hear “65 billion barrels,” “biggest oil deal in history” and “substantially lower gas prices,” some may immediately revise their assumptions about future supply. Computerized trading systems can react even faster. A headline can therefore move crude prices before a single additional Venezuelan barrel has been produced.

For someone possessing advance information, you don’t have to know where oil prices will ultimately settle five years from now. You only have to anticipate the market’s initial reaction to information that everyone else hasn’t heard yet.

Knowing a Deal Was Coming Isn’t the Same as Knowing the Announcement

There had already been indications that the United States and Venezuela were moving toward expanded oil arrangements, and Chevron has been working toward expanding its Venezuelan projects. That means the general possibility of increased Venezuelan production was not a secret.

But markets don’t operate on such a binary basis. There is an enormous informational difference between knowing that negotiations are underway and knowing exactly what the president will announce, how large he will claim the agreement is, what language he will use, and precisely when he will make the announcement.

Imagine hearing on Thursday that OPEC is discussing production. That is public information and can be incorporated into oil prices. Now imagine privately knowing that OPEC will announce a massive production increase at 6 p.m. Friday. Those are not remotely equivalent pieces of information.

The same principle applies here. The existence of speculation about a Venezuela agreement doesn’t eliminate the potential value of knowing the contents and timing of the president’s announcement beforehand.

When Does It Become Market Manipulation?

A president announcing a legitimate energy policy that subsequently moves oil prices is not market manipulation. Presidents have always made decisions that affect commodities. Sanctions, wars, tariffs, Strategic Petroleum Reserve releases, drilling policies and diplomatic agreements can all move energy prices.

Likewise, the fact that somebody correctly anticipated an announcement and made money does not by itself prove misconduct.

The issue becomes much more serious if someone with confidential advance knowledge uses that information for personal financial gain. And it becomes something closer to classic market manipulation if market-moving statements themselves are deliberately crafted, exaggerated, mistimed or otherwise used as part of a scheme intended to move prices for financial benefit.

Commodity markets are not a legal free-for-all. Commodity Futures Trading Commission Rule 180.1 prohibits manipulative or deceptive schemes in connection with commodities, futures and swaps. Among other things, it prohibits intentionally or recklessly making materially false or misleading statements and engaging in fraudulent or deceptive practices affecting commodity markets.

Again, I am not alleging that happened here. There is presently no evidence I have seen demonstrating that Trump or anyone associated with him established oil positions ahead of Friday’s announcement. I am just explaining that the opportunity exists.

Why This is More Important Than Ever

Presidents have always been able to move markets, but modern communications have magnified that power. A president can now publish a few sentences directly to tens of millions of people without a press conference, prepared remarks or even advance notice to the broader public. Markets around the world can react within seconds. This is exactly why Truth Social’s new service selling paying customers faster access to Trump’s posts, including potentially market-moving statements, has raised serious ethical and legal concerns.

In oil, a single statement about Iran, Venezuela, Russia, Saudi Arabia, the Strategic Petroleum Reserve or the Strait of Hormuz can change perceptions of future supply and send billions of dollars moving through commodity markets. CME describes WTI as the world’s most liquid crude oil contract, with more than one million futures and options contracts changing hands daily.

That creates an unavoidable information problem. Somewhere inside government, people know about major policy announcements before the rest of us do. Cabinet officials and staff members know. People involved in negotiations and outside parties participating in an agreement may know. In some cases, dozens or hundreds of people could possess pieces of information capable of moving markets.

Most of those people undoubtedly behave appropriately. But financial markets cannot operate on the assumption that temptation doesn’t exist.

Friday’s announcement makes the problem unusually easy to visualize. Imagine knowing before the oil market closed that the president planned to announce that the United States had obtained control over 65 billion barrels of Venezuelan reserves and that he intended to tell the public this would substantially lower gasoline prices. Whether you personally believed his assessment would be beside the point. You would know what millions of other market participants were about to hear. That knowledge has potential monetary value.

The Question We Should Be Asking

The most interesting question is therefore not whether Venezuela can rapidly produce another 65 billion barrels. It obviously can’t. Nor is it whether Trump’s announcement will ultimately prove bullish or bearish for oil. Markets may decide that the long lead time required to rebuild Venezuelan production makes the agreement largely irrelevant to near-term supply.

The broader question is what safeguards exist around market-moving information generated at the highest levels of government.

If a president knows that an announcement can move oil prices, and people surrounding the president know exactly what will be announced before the market does, there should be extraordinary sensitivity to who possesses that information and whether anyone with access is trading.

Friday’s timing does not prove wrongdoing. It isn’t evidence that Trump personally profited, and it would be irresponsible to claim otherwise without evidence. But it demonstrates just how easily someone could theoretically exploit advance knowledge of a presidential announcement. A few hours may be all that separates ordinary market participants from people who already know tomorrow’s headline.

In a market where billions of dollars can change hands on a single sentence, that is a vulnerability worth paying attention to.