US sues big oil traders for 2008 manipulation

[Fern]

Regulators launched one of the biggest ever crackdowns on oil price manipulation on Tuesday, suing two well-known traders and two trading firms owned by Norwegian billionaire John Fredriksen for allegedly making $50 million by squeezing markets in 2008.

The Commodity Futures Trading Commission (CFTC) said traders James Dyer of Oklahoma's Parnon Energy, and Nick Wildgoose of Europe-based Arcadia Energy, amassed large physical positions at a key U.S. trading hub to create the impression of tight supplies that would boost oil prices.

Later they dumped those barrels back onto the market, causing prices to crash and racking up profits from short positions they had accrued in futures markets, the suit said.

http://www.msnbc.msn.com/id/43165610/ns/business-oil_and_energy/

I don't know if this suit will be successful, but maybe it will discourage some of this speculation that adds no real value to the system but screws us over with higher than necessary prices at the pump. I'm pleasently surprised to see this.

The CFTC said the traders aborted the trading strategy after April 2008, when they learned of regulators' investigations. Just months later U.S. oil prices surged to a record $147 a barrel, then crashed to nearly $30 a barrel by the end of the year.

Amazing, if that huge fluctuation in price was even mostly attributable to speculators.

Fern

 

[JS80]

Good start but I doubt this will change future behavior. They will just get more creative.

 

[dmcowen674]

Meanwhile speculation as usual, oil back over $100

5-25-2011

http://news.yahoo.com/s/ap/20110525...jb3JkaW9uX2J1c2luZXNzBHNsawNzdG9ja3N0dXJuaGk-

Crude oil tops $100 a barrel

Oil rose nearly $2 to settle at $101.32 per barrel, helping to push energy stocks higher.

Energy companies in the S&P 500 rose 1.6 percent. Cabot Oil and Gas Corp. led the S&P 500 higher, rising 7 percent.

 

[Thump553]

I hope they nab the manipulators that are driving it up again this year, but I'd greatly prefer better regulation to prevent the manipulation in the first place.

 

[lupi]

These guys are just using the amount of money they control to manipulate the market, rather Sorosian of them; but unless there are actual rules against it whaat is the point of these investigation.

 

[Sinsear]

Seen as people all blamed Bush and his "oil buddies" last time for surging oil and gas prices, I guess we can lay the blame at Obama's feet this time?

 

[EagleKeeper]

As long as money can flow outside the US, it will be difficult to crack down on speculators.

It would have to be a concerted effort across all commodity exchanges.

 

[Craig234]

A small start. Republicans are blocking any efforts to reduce the harmful speculation.

WASHINGTON -- Exxon Mobil Chairman and CEO Rex Tillerson said Thursday that heavy Wall Street trading has driven up the price of oil well beyond the level that normal supply and demand forces would suggest.

Under questioning from Sen. Maria Cantwell (D-Wash.) during a Senate Finance Committee hearing, the Exxon chief said that if oil prices were being dictated by normal economic forces, it would cost between $60 and $70 a barrel. Oil is currently trading just below $100 a barrel and has fallen sharply in recent weeks after soaring for most of the year.

"If you were to use a pure economic approach . . . It's pretty hard to judge, but it would be, when we look at it, it's gonna be somewhere in the $60 to $70 range," Tillerson said.

Several economists have expressed concerns that speculation may be driving up the prices of oil and food. The Commodity Futures Trading Commission, which regulates such activity, says that the number of speculative bets on oil is at an all-time high.

During last year's Wall Street reform bill debate, Cantwell was the top Congressional proponent of reining in the $600 trillion derivatives market, which currently allows traders to place bets on everything from subprime mortgages to the price of corn without either regulatory oversight or market scrutiny.

Last year's legislation required the CFTC to write new rules cracking down on excessive speculation in the oil and food markets, but the regulator has been slow to act, despite Commissioner Bart Chilton's urging. On Wednesday, Cantwell joined 14 Senate Democrats and Sens. Olympia Snowe (R-Maine) and Bernie Sanders (I-Vt.) in signing a letter asking the agency to curb excessive speculation as soon as possible.

House Republicans, meanwhile, are pushing legislation that would bar the CFTC from implementing any new derivatives rules before the end of 2012.

 

[HomerJS]

I like the idea of only consumers of a commodity may purchase a contract. If you buy it you have to take delivery of it.

 

[Fern]

These guys are just using the amount of money they control to manipulate the market, rather Sorosian of them; but unless there are actual rules against it whaat is the point of these investigation.

In reading the article the type of behavior they are going after is artifical market manipulation for profit.

Looks like the oil futures market is small enough to significantly influence with 'games'. You buy up enough and it looks like supply is very tight thus driving up prices. Meanwhile these same guys are selling futures at those high prices.

It's no different than illegal stock trader behavior, or the Hunt bros escapades with silver back in the day. They went to prison IIRC.

Fern

 

[Craig234]

I like the idea of only consumers of a commodity may purchase a contract. If you buy it you have to take delivery of it.

Matt Taibbi's Griftopia explains the history of this well.

A *limited amount* of speculation in a futures market is very helpful to buyers and sellers who would be ruined by price fluctuations.

It's when the amounts are higher you see market distortion that causes problems.

FDR understood this when the markets were established, and worked fine.

It's more recently Wall Street corruption 'de-regulated' things.

Guess who's smack in the middle of this commodities trading being abused?

Goldman Sachs.

Where's the media telling the public the problem? Hard to find.

 

[JSt0rm]

As long as money can flow outside the US, it will be difficult to crack down on speculators.

It would have to be a concerted effort across all commodity exchanges.

I think we would only need to send a SEAL team once MAYBE twice to get our point across.

 

[EagleKeeper]

And Goldman Sachs is in bed with who?

What the House Republicans want may be in opposition to the Senate Democrats which then generates a stale mate.

However, Obama can issue commands to the regulators that will tighten up oversight until they have new marching orders from Congress.

 

[Martin]

Good start but I doubt this will change future behavior. They will just get more creative.

get your government out of the market, commie.

 

[lupi]

Seen as people all blamed Bush and his "oil buddies" last time for surging oil and gas prices, I guess we can lay the blame at Obama's feet this time?

Actually, several of us at the time said it was due to (apperantly these) speculators.

But I won't disagree with you that this time it's O'Bama's fault.

 

[lupi]

In reading the article the type of behavior they are going after is artifical market manipulation for profit.

Looks like the oil futures market is small enough to significantly influence with 'games'. You buy up enough and it looks like supply is very tight thus driving up prices. Meanwhile these same guys are selling futures at those high prices.

It's no different than illegal stock trader behavior, or the Hunt bros escapades with silver back in the day. They went to prison IIRC.

Fern

But is there anything actuallly making it illegal. I though when this ooccured it was mentioned that rules that would restrict this has been removed to make the US commodity market on par with other ones to keep those broker's money here.

 

[Fern]

But is there anything actuallly making it illegal. I though when this ooccured it was mentioned that rules that would restrict this has been removed to make the US commodity market on par with other ones to keep those broker's money here.

In the Stock market the Securities and Exchage Commision has section 10 (b), a rule that prohibits manipulation of this sort.

Section 10(b) of the Securities Exchange Act of 1934 prohibits the use of any ‘manipulative or deceptive device’ in the purchase or sale of any security and authorizes the SEC to promulgate rules to protect investors

Similarly, in 2007 Congress passed a law giving the FTC the power to pass rules gainst such manipulation gas commodities.

Here's more info:

http://www.felj.org/docs/elj311/19-125-GebhardMongoven-FTCMarketManipulationRule-030510.pdf

Fern

 

[dmcowen674]

Seen as people all blamed Bush and his "oil buddies" last time for surging oil and gas prices, I guess we can lay the blame at Obama's feet this time?

Yes, many should be thrilled since it will stop him from getting re-elected.

 

[LegendKiller]

But...but...bue...it's the dollar's decline in value?!?! No, it's peak oil!?!? No, it's Supply/demand...!?!?

LOL.

 

[child of wonder]

We are all slaves to oil. Awesome.

 

[ConstipatedVigilante]

These guys are just using the amount of money they control to manipulate the market, rather Sorosian of them; but unless there are actual rules against it whaat is the point of these investigation.

Chilton's comments came after Arcadia, one of two firms sued on Tuesday for allegedly reaping $50 million by illegally manipulating oil markets in 2008, pledged to fight the CFTC.

from http://www.reuters.com/article/2011/05/25/us-cftc-oil-manipulation-idUSTRE74O00S20110525

What these guys did is they cut off the supply to a major oil distribution center, which was intended to raise the price on the WTI price. What they did was very specific - they didn't just buy up a bunch of oil, but they bought up a bunch of oil in a very specific place at a very specific time to drive up the price, then profited from it. That's illegal.

 

[halik]

You can put on $100K position on CME with just 6 grand, it doesn't take a genius that with enough capital you can game the markets.

These are the same jackasses that did played the contango game in 06-07, just buying up futures, taking delivery if the rolls cost was too high and parking the oil into their storage.

 

[halik]

Matt Taibbi's Griftopia explains the history of this well.

A *limited amount* of speculation in a futures market is very helpful to buyers and sellers who would be ruined by price fluctuations.

It's when the amounts are higher you see market distortion that causes problems.

FDR understood this when the markets were established, and worked fine.

It's more recently Wall Street corruption 'de-regulated' things.

Guess who's smack in the middle of this commodities trading being abused?

Goldman Sachs.

Where's the media telling the public the problem? Hard to find.

Goldman's energy trading was predominantly market making. You should be focusing on directional players, hedge funds and institutional money. Even prop trading as whole is peanuts compared to the mountain of money that money managers are allocating to commodities this year.

<- Trader

 

[bfdd]

30-40 dollars was speculation with 20 or so being tacked on by producers who were able to hide it behind the speculative drive up. The current upward trend is mostly oil corps/producers from what I can tell. Speculators backed off a drive up during the uprisings across N.Africa and ME rather quickly when it became known supplies and production at the world scale didn't slow and demand remained low. We are basically being screwed by hardcore price fixing right now and they will try to justify it by blaming the previous price fixing that went on in 08. Our leaders wont do anything.

 

[halik]

30-40 dollars was speculation with 20 or so being tacked on by producers who were able to hide it behind the speculative drive up. The current upward trend is mostly oil corps/producers from what I can tell. Speculators backed off a drive up during the uprisings across N.Africa and ME rather quickly when it became known supplies and production at the world scale didn't slow and demand remained low. We are basically being screwed by hardcore price fixing right now and they will try to justify it by blaming the previous price fixing that went on in 08. Our leaders wont do anything.

Isn't OPEC price target 85 bucks a barrel?