Chapter 42: A Knife in the Back (2)
To be precise, the United Group stabbed the British three times on the issue of oil, instantly making the British control of European crude oil pricing a bubble.
The first stab was the great discovery of United Oil. The crude oil discovered in the oil fields of Algeria and Libya was closer and of better quality than the Iranian oil controlled by the British, and it was said that the reserves were larger. In fact, the Iranian reserves were larger, but the British had not had time to discover it.
Among the major European powers, Russia originally had oil, but this was not the mainstream. The real mainstream was three streams: Iranian oil, Romanian oil (controlled by British capital), and East Indian oil (the crude oil of the Dutch East Indies was developed by Shell, but Shell was a joint venture between Britain and the Netherlands). The supply of these three streams of oil was not too large, adding up to less than 15 million tons, but it was enough to meet European demand. Now that the two oil fields were discovered, this control system was instantly torn to pieces.
What's worse is that France and Italy have now discovered oil in their colonies, which means that Britain's hope of choking the fleets of the two countries through the oil industry has failed. In the Mediterranean, it is enemies with Italy and France at the same time? Even if the British were arrogant, they would not dare to make such a layout. So they could only watch the oil colonies of Italy and France approaching, while Iranian oil had to go around most of Europe to reach Great Britain. Great Britain's oil supply lines (the East Indian oil fields in the Far East and the Iranian oil fields in the Middle East) were in danger of being cut off by Italy and France.
The second blow was the oil trade between the United Group and the Soviet Union. Because the Soviet Union refused to repay the debt owed by Tsarist Russia, the relationship between Britain and the Soviet Union continued to be frozen. MacDonald only established diplomatic relations, but he could not control economic exchanges. With the United Group's move, Baku crude oil could be continuously supplied to Europe. What's more, the United Group also took advantage of the opportunity of purchasing from both ends to purchase oil from the Soviet Union on one end and industrial products from other countries (mainly Germany) on the other end in exchange for oil. This bypassed the traditional European system of settling oil trade in pounds, which was equivalent to another sharp blow to the pound's already shaky international payment currency status.
What's more, Contini's foreign trade is all settled in US dollars, except for lira, which costs hundreds of millions of dollars at any time. Even countries like the Soviet Union can open channels. This makes Wall Street bosses very happy. The Federal Reserve praises Contini and believes that he has greatly promoted the development of US-Italy relations. It even spoke well of the United Group when it issued $100 million in corporate debt for the first time. In private, it believes that this is a good start and a reliable investment product. When speaking to a group of bosses, what is the difference between using private and official names? This makes the pound worse.
The third knife is that after deploying forward long orders in the New York spot market, the United Group announced the principle of "protective price open purchase", limiting the minimum price of $1 and the maximum price of $1.25, so that the international oil price, which is currently hovering at a low level, immediately began to rise. It stands to reason that the British should be happy as an exporting country. The problem is that in view of the lessons of the previous year, the British have hedged their positions in the oil market, and the speculative market is bullish and bearish, and use long-short hedging to flatten positions and hedge risks.
If you are willing to honestly hedge at a 1:1 ratio, you will not lose extra money no matter how the market fluctuates. However, people are bad because they are too smart. Oil capitalists believe that with the increase of Soviet crude oil and the exploitation of North African oil in the future, the future market crude oil supply will greatly exceed consumption. Therefore, they bet on short orders in the forward market. The position is still very large. Together with the speculative positions active in the market, the weight has reached more than 400,000 orders, and the average price is only US$0.91. Among these more than 400,000 orders, the United Group holds 110,000 counter-orders, in other words, it controls a quarter of the counter-position.
As soon as the announcement of the protective price open purchase came out, the oil price immediately jumped, rising rapidly from 0.91 to 0.97, and then broke through 1 US dollar after repeated weighing. The long and short sides quickly launched a fierce fight, but the United Group said that it was not joking and immediately announced 7 oil reserve bases, each of which was at the level of tens of millions of barrels, and publicly expressed its welcome to oil companies to pre-order supply contracts to purchase 70 million barrels at a purchase price of $1. In addition, Contini also said that he would consider cooperating with Germany in the future to establish a Central European oil storage base with a scale of at least 200 million barrels, which would also apply to the protective price. This bomb woke up the market.
The price rose to $1.03 a week later. As if the matter was not big enough, the Soviet Union said that due to internal industrial construction, the oil exported to Europe this year would be controlled within 20 million barrels/year. In fact, this was something Contini and the Soviet Union had already communicated. After all, North Africa could produce a lot of oil in a few years, and it really didn't need so much Soviet oil. However, Comrade Bukharin's help was not in vain. Contini signed a coal supply contract based on the floating market price, agreeing that from 1928 onwards, the Soviet Union would supply Italy with 5 million tons of thermal coal or coke every year, replacing the reduced oil output.
This news made the market panic: they knew that the Soviet Union was expanding Baku's oil production and thought that the supply would increase, but they did not expect to get news of a supply reduction. This back and forth caused the market price to rush to US$1.09 at the end of February, a 20% increase compared to the price of 0.91, while the forward spot position margin was only 5%. Countless speculators were liquidated, and some quickly changed their positions from bearish to bullish, forming a week-long short-killing short action.
The whole process was very tragic. The price soared from $1.09 to $1.27, which was equivalent to a 40% increase. After breaking through $1.2, the United Group gradually reduced its positions. By mid-March, its positions had been reduced to 60,000. When it reached $1.28, it closed another 40,000 positions, equivalent to 40 million barrels, and pushed the price below $1.23.
Then the United Group once again joined hands with Wall Street to reiterate that it would sell above $1.25, and the market, which had just woken up from a dream, reacted...
After this back and forth, the market price rushed to $1.09 at the end of February, which was a full 20% increase compared to the price of $0.91, and the forward spot position margin was only 5%. Countless speculators were liquidated, and some quickly changed their positions from bearish to bullish, forming a week-long empty killing empty move.
The whole process was very tragic. The price soared from $1.09 to $1.27, equivalent to a 40% increase. After breaking through $1.2, United Group gradually reduced its position. By mid-March, its position had been reduced to 60,000. When it reached $1.28, it closed another 40,000 positions, equivalent to 40 million barrels, and pushed the price below $1.23.
Then United Group once again joined hands with Wall Street to reiterate that it would sell above $1.25, and the market, which had just woken up from a dream, reacted...