The Commodity Futures Trading Commission charged one trading house and two individuals for illegally manipulating oil prices during the price spike of 2008, when oil reached $147 a barrel, by creating the appearance of a shortage to drive up the benchmark for crude. While the action covers oil trading in 2008, the connection to today, where speculation is seen as a primary cause for higher gas prices, is unmistakable.
The CFTC complaint alleges that the traders carried out the scheme in January and March 2008.
By mid-January they had accumulated 4.6m barrels of physical oil, or two-thirds of oil available for delivery against the February WTI futures contract. In March they bought 6.3m barrels, equal to 84 per cent of oil available for delivery against the April contact.
The regulator alleged that Parnon Energy, a US oil trader, together with its Swiss and UK affiliates Arcadia Energy (Suisse) and Arcadia Petroleum, made more than $50m from the scheme in January and March 2008 [...]
The buying created the impression of a shortage and pushed up the price of WTI futures on the New York Mercantile Exchange. Ahead of their move in the physical market, the traders allegedly bought large amounts of futures and other financial instruments that would profit from a price rise.
“They wanted to lull market participants into believing that supply would remain tight,” the CFTC said. “They knew that as long as the market believed that supply was tight and getting even tighter, there would be upward pressure on the prices of WTI for February delivery relative to March delivery, which was their goal.”
The employees at Arcadia/Parnon, James T. Dyer and Nicholas J. Wildgoose, were former BP traders, notes Brad Johnson of Think Progress. The CFTC has emails where the traders describe their scheme to make a “shitload of money” and then dump the trades on the market in an “inevitable puking.” There’s more from the New York Times. The penalties could rise to as much as $150 million, on top of recouping the $50 million in profits from the scheme.
Sen. Maria Cantwell, who has doggedly chased this issue for years, said in a statement that
“This is exactly what we expect the CFTC to be doing… Consumers have felt the impact of manipulation we’ve seen in the electricity, natural gas and oil markets. I expect the CFTC to be aggressive in policing these markets and standing up for consumers who are getting gouged at the pump.”
This is exactly the kind of case that Attorney General Eric Holder is looking into as part of a working group the President asked him to convene, focused on fraud in the oil and gas markets. Yet despite this action by the CFTC, and despite the fact that rampant speculation exists in the market today, the House GOP budget would cut funding for the CFTC by 15%.