Streetwise Professor

June 13, 2015

Definitive Proof That The New York Times’ David Kocieniewski Is A Total Moron*

Filed under: Commodities,Derivatives,Economics,Energy,Politics,Regulation — The Professor @ 6:06 pm

Not that further proof is needed, but still.

You may recall that NYT “reporter” (and by “reporter,” I mean “hack”) David Kocieniewski slimed me on the front page of the NYT on 31 December, 2013. In a nutshell, Kocieniewski accused me of being in the pocket of oil traders, and that this had led me to skew my research and policy positions. Specifically, he insinuated that I opposed position limits and defended speculation in energy markets because I had been suborned by oil traders who profited from high prices, like those that occurred in 2008 (before the crash). Kocieniewski’s main piece of “evidence” was that I had written a white paper sponsored by Trafigura. According to Kocieniewski, as an oil trader, Trafigura benefited from high prices.

At the time I pointed out that this demonstrates Kocieniewski’s appalling ignorance, as Trafigura is not a speculator, and is typically short futures (and other derivatives) to hedge its inventories of oil (and other commodities). Companies like Trafigura have no real interest in the direction of oil prices directly. They make money on margins and volumes. The relationship between these variables and the level of flat prices depends on what makes flat prices high or low.  I further said that if anything, commodity traders are likely to prefer a low price environment because (1) low prices reduce working capital needs, which can be punishing when prices are high, and (2) low price environments often create trading opportunities, in particular storage/contango plays that can be very profitable for those with access to storage assets.

Well, imagine my surprise (not!) when I saw this headline and article:

Crude slide bolsters Trafigura’s profits and trading margins

Trafigura has posted record half-year profits and a doubling of trading margins, illustrating how one of the world’s largest commodity trading houses has been a big beneficiary of the collapse in oil prices.

Profits at the group rose almost 40 per cent in the six months to 31 March, reaching $654m, while margins hit 3.1 per cent, as the Switzerland-based company used its global network of traders and storage facilities to buy cheap crude and take advantage of dislocations in the oil market.

. . . .
It was not the only company to benefit. Other trading groups including Vitol, the largest independent oil trader, and Gunvor have posted strong results for this period. Even ShellBP and Total managed better-than-expected first quarter results thanks to the performance of muscular trading operations.

Wow. In Kocieniewskiworld, “Crude slide bolsters Trafigura’s profits” would be a metaphysical impossibility. Here on earth, that’s an eminently predictable event. Which I predicted. Not that that makes me a genius, just more knowledgeable about commodity markets than David Kocieniewski (which is a very low bar).

Not that there was ever anything to it in the first place, but this pretty much blows to hell the entire premise of Dim Dave’s story. Proof yet again that if you read the NYT for economics stories, you’ll wind up dumber after reading than before.

* As well as an unethical slug who blatantly violated the NYT’s ethics guidelines. Not that his editor gave a damn, making him as much of an unethical slug as Kocieniewski.

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  1. Prof

    Getting the impression that you’re not impressed by David Kocieniewski. Don’t quite know why, just the vibe I’m picking up. Odd.

    Comment by Green as Grass — June 15, 2015 @ 2:29 am

  2. @Green. Yes. I realize that my subtlety sometimes makes it hard to figure out where I stand.

    The ProfessorComment by The Professor — June 15, 2015 @ 9:26 am

  3. NYT the gift that keeps on giving. A few more of these and you are going to have to restock the barrel with mentally damaged fish.

    Comment by sotos — June 15, 2015 @ 11:58 am

  4. Remember once reading somewhere NYT ran an op-ed predicting the end of snow (because climate change) and then like year later its “journalists” could not get to work due to huge, uhm, snowstorm. Not sure whether it is true, but sounds entirely plausible.

    Also surprised it is already so long since the hit piece, time sure flies…

    Comment by deith — June 15, 2015 @ 6:28 pm

  5. Prices have always been a futile debate the argument that high price = profit is weak but the argument that low prices boost profit is not strong.

    Boosted by volumes regardless of prices. e.g the sell-off has forced oil producers to sell, then it has helped Trafigura to position itself (build position), they are basis traders trade pretty much regardless of the price levels.

    Comment by Simon Jacques — June 16, 2015 @ 7:53 am

  6. The most interesting aspect of this interim report can be found on page 20 under Commitments and Contingencies Liability potential obligation that may be incurred depending on the outcome of a future event. from 7,400 billi to 4,948 billi… Can be loss controls, counterparty claims, missing inventories, disputes for bonus with ex traders, or contingencies for settlements with regulators insert_________…

    Judging by the volatility of this earning component, volatile earnings, revisions ahead.
    Hope that in the next report Claude will show the breakout of this…

    Comment by Simon Jacques — June 16, 2015 @ 7:54 am

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