US Probes Crude Price Manipulation – Update

[Charles RandallParticipant]

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

[Charles RandallParticipant]

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

[Charles RandallParticipant]

<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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