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US Probes Crude Price Manipulation – Update

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This topic contains 2 replies, has 1 voice, and was last updated by  Charles Randall 12 years, 5 months ago.

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  • #3599

    Charles Randall
    Participant

    U.S. Probes Crude Oil Trading for Price Manipulation (Update2)
    2008-05-30 08:42 (New York)
    By Matthew Leising and Alexander Kwiatkowski
         May 30 (Bloomberg) — The U.S. Commodity Futures Trading
    Commission, the watchdog for commodity transactions, is
    investigating U.S. crude oil trading to determine whether the surge
    in prices to record levels is the result of manipulation or fraud.
         The CFTC has been investigating the transportation, storage
    and trading of crude oil in the U.S. since December, it announced
    in a statement posted on its Web site yesterday
    . The commission’s
    probe includes oil futures contracts, which have soared as much as
    40 percent this year to a record above $135 a barrel.
         “The Commission is taking the extraordinary step of
    disclosing this investigation because of today’s unprecedented
    market conditions,” CFTC Acting Chairman Walt Lukken said in the
    statement. The Washington-based regulator, which generally conducts
    inquiries on a confidential basis, didn’t say when the probe will
    end. The CFTC did not name any companies being targeted and said
    details of the investigation were confidential.
         U.S. crude rose as high as $135.09 a barrel on the New York
    Mercantile Exchange on May 22. Brent crude oil, the main contract
    traded at Intercontinental Exchange Inc.’s London market, climbed
    to $135.14 the same day. Record prices have led some analysts and
    the producer group OPEC to claim that the market is being driven by
    speculation rather than the demand and supply of oil.

                             Exiting Positions

         In the same week that crude prices touched records above $135,
    the number of outstanding futures contracts on Nymex,
    known as open
    interest, fell.
    Analysts said this suggested some traders were
    buying contracts to cover wrong-way bets based on speculation
    that
    prices would decline. Falling open interest coinciding with rising
    prices are signs that traders are buying to exit so-called short
    positions.
         Concurrent with the investigation, the commission said it was
    implementing measures to improve transparency in energy market
    trading, including greater monitoring of U.S. crude oil trading on
    Intercontinental’s ICE Futures Europe exchange in London
    .
         “The CFTC is paying lip service to congress by having to be
    seen to be investigating speculation,” said Rob Laughlin, senior
    broker at MF Global Ltd. in London.
    They will spend months, and
    quite possibly millions of dollars, to find nothing. The reality is
    now there are thousands more participants trading oil, and oil
    contracts, especially since electronic trading has become the

    norm.”
                            London Markets

         The CFTC said it has reached an agreement with the U.K.’s
    Financial Services Authority and ICE to expand surveillance of
    trading on the London exchange
    , where all transactions are made
    electronically. ICE Futures offers trading in U.S. West Texas
    Intermediate crude oil futures contracts, the grade that sets
    prices within the U.S., as well as its flagship North Sea crude,
    Brent.
         The agreement with the FSA “will enhance the amount and
    quality of the information the CFTC receives regarding crude oil
    trading in the U.K. and will enhance the agency’s already vigorous
    surveillance activity,” according to the statement.
         Nymex has about 75 percent of the open interest, or
    outstanding contracts, in U.S. WTI crude oil futures and ICE
    Futures Europe has the remaining 25 percent
    , the CFTC said.
         Under the agreement, the FSA and ICE will provide the U.S.
    regulator with information about daily large trader positions in
    the WTI contract on the U.K. exchange. Information will pertain to
    all contract months traded, as opposed to just near-term contracts,
    the statement said.

                              FSA Information

         The FSA and ICE have also agreed to give the CFTC more
    information about traders and to provide trading data in a format
    that is easier to monitor
    . ICE Futures Europe will also notify the
    CFTC when traders “exceed position accountability levels,” the
    statement said.
         The FSA is “committed to working closely with the CFTC to
    address and mitigate risk” of manipulation, said FSA spokeswoman
    Teresa La Thangue. The U.K. body regularly shares information with
    the CFTC “to assist in the detection of potential abuse and
    manipulation that relate to contracts on the U.S. and U.K.
    derivatives exchanges,” she said by phone from London today. She
    declined to comment on the CFTC investigation.
         During testimonies to Congress last week, oil executives said
    that while limited access to foreign resources and rising industry
    costs have helped push prices higher, the current level is not
    justified by oil market fundamentals.
         The price of oil should be “somewhere between $35 and $65 a
    barrel,” John Hofmeister, president of Shell Oil Co., the Houston-
    based subsidiary of Royal Dutch Shell Plc, said at a Senate hearing
    on May 21. John Lowe, executive vice president of ConocoPhillips,
    said oil should be “about $90 a barrel in this environment.”
         The CFTC said it is also trying to improve the information it
    gets about index-based trading on energy futures markets so it can
    determine the influence this “relatively new” type of trading has
    on prices.
         Commodity index futures such as the Reuters/Jefferies CRB
    Index include crude oil futures and other energy components.
         The regulator will require traders to give monthly reports
    about their index-based trading and it plans further reviews of how
    these traders are classified, how they report their trading
    activity and how they behave, according to the statement.

    –With reporting by Grant Smith, Caroline Binham and Nandini
    Sukumar in London and Anthony DiPaola in Rome. Editors: Stephen
    Voss, Jonas Bergman

    To contact the reporters on this story:
    Matthew Leising in New York at +1-212-617-1151 or
    mleising@bloomberg.net;
    Alexander Kwiatkowski in London at +44-20-7330-7450 or
    akwiatkowsk2@bloomberg.net

  • #6816

    Charles Randall
    Participant

    Here is update on Crude Price Manipulation/Speculation investigations – ongoing 6
    months since Dec 2007 by CFTC with help ICE & FSA. But I agree with UK trader – if they haven’t already found it given all the big moves like the $135 shift causing all wrong way bet covering, then this is going end up being just lip service for Congress & they wont find anything. 
     
    Speaking of Congress when idiots had Oil companies on carpet one more time for high Gasoline prices – Marathon, COP & Exxon did creditable job of putting forth the speculation as major cause or price increase. Now I  wonder why Congress has never called any Wallstreet groups in for a grilling session ……. guess not as good headlines for political races as Oil Co’s for unenlightened masses?
     
    All Oil companies over the years have lost their shirts when they shifted from fundamentals to speculation – and although crude has been mostly up market since heavy speculation started (Stupid Fed rate lowering started this mess with Wallstreet bucks shifting out of Cash vehicles & into commodities) there is no way this can be legitimate given kind losses the short covering/wrong way betting would have caused normally. So Nymex & Wallstreet have to be doing something along the lines of the Nymex Director NG & traders that were caught (ie placing trades to themselves after they saw which way market was moving, and before they entered legit hedging fundamental moves).
     
    Good news – they are off their butts & looking, Bad news – it is most bureaucrats that caused lot problems looking with Wallstreet groups that have to be enabling some this process.
    Regards
    Charlie

  • #6761

    Charles Randall
    Participant

    <Everyone seems to be coming to conclusion speculators are major cause for Crude price increases…..except CFTC. But outside submitting bills & proposals Congress nor Wallstreet still hasn’t acted on news – CER>
     
    Speculators Are Largest U.S. Oil Contract Buyers (Update June)
    2008-06-23 11:57 (New York)

    By Tina Seeley
         June 23 (Bloomberg) — Speculators became the largest
    players in oil futures markets, nearly doubling their share in
    the past eight years as prices rose to records, in a “radical
    shift” for the market, according to a congressional committee
    .
         In January 2000, speculators controlled 37 percent of
    contracts to buy West Texas Intermediate crude oil on the New
    York Mercantile Exchange,
    with the rest held by physical
    hedgers, including refiners and airlines that need to hedge
    against delivered fuel costs.
         By this April, speculators controlled 71 percent of the
    contracts, according to data provided to the House Energy and
    Commerce Committee by the Commodity Futures Trading Commission
    .
         “Energy speculation has become a growth industry and it is
    time for the government to intervene,” Representative John
    Dingell, the committee chairman, said at a subcommittee hearing
    today.
         The hearing by the Subcommittee on Oversight and
    Investigations focuses on speculation in energy markets,
    including testimony from Walter Lukken, acting chairman of the
    CFTC; and Doug Steenland,
    chief executive officer of Northwest
    Airlines.
         “The CFTC data illustrates a radical shift in the oil
    futures market from one used mainly by buyers and sellers to
    hedge price risk to one where most of the participants are
    speculators,” according to a memorandum prepared by committee
    staff.

                            Record Prices

        Crude oil prices have doubled from last year, reaching a
    record $139.89
    a barrel in trading on the New York Mercantile
    Exchange June 16. Congress has held several hearings on what is
    driving prices up, and President George W. Bush last week called
    for expanded drilling to respond to record prices.
         Dingell, a Michigan Democrat, said Congress should explore
    “a full range of options” to limit speculation, including
    raising margin requirements for financial speculators to 50
    percent, preventing pension funds from investing in commodities

    and prohibiting investment banks from owning energy assets.
         “These and other ideas need to be debated, evaluated, and
    acted on sooner rather than later,” Dingell said.
         Representative Bart Stupak, chairman of the investigations
    subcommittee, said June 20 that speculation was adding $65 to
    $70 to the cost of a barrel of oil. Stupak
    , a Michigan Democrat,
    has introduced one of several pieces of legislation that aim to
    limit speculation in oil markets or heighten oversight of the
    markets by the commission.

                             `Driving Force’

         “The Commodity Futures Trading Commission and the
    Department of Energy may be the only people in the world who
    currently believe that speculation
    in energy markets is not a
    driving force in the recent run up in oil prices
    ,” Stupak said
    in an e-mailed statement.
         Energy Secretary Samuel Bodman said June 21, while
    attending a meeting of oil producers and consumers in Saudi
    Arabia, there is “no evidence that speculators are driving
    prices.”
         Chakib Khelil, president of the Organization of Petroleum
    Exporting Countries, said at the meeting that speculators are
    driving up prices,
    along with the credit crisis and geopolitics.
         The U.S. futures regulator last month announced it had
    begun an investigation of oil delivery, storage and trading as
    well as requiring more information from market participants
    including institutional investors and index traders.
         “Every crisis needs a culprit,” Sanford C. Bernstein
    analysts Andrew Keen, Ben Dell, Neil McMahon and Hugh Wynne
    wrote in a June 20 note. “Active speculation is a catalyst for
    market movements, not an underlying cause.”

    –With reporting by Daniel Whitten in Washington. Editor: Dan
    Stets, Joe Link

    To contact the reporter on this story:
    Tina Seeley in Washington at +1-202-624-1965 or
    tseeley@bloomberg.net.

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