Eric Holder To Fraud Squad: Oil Price Plunge Should Benefit Consumers

WASHINGTON -- U.S. Attorney General Eric Holder sent a memo to the federal agencies involved in the president's new Oil and Gas Price Fraud Working Group on Friday, urging them to take close look at the recent plunge in oil prices. The crude oil market fell 10 percent Thursday in a record sell-off.

The sharp drop came amid concerns from several experts that excessive speculation in commodities markets was driving up gas prices for consumers. As Bart Chilton, a top regulator at the Commodities Futures Trading Commission (CFTC), has repeatedly noted, the number of speculative bets on oil and food are at record levels.

The CFTC and Justice Department have had authority to monitor fraud and manipulation in the oil markets for decades. But President Barack Obama created the new oil market fraud squad in April to provide enhanced regulatory scrutiny of potential fraud and manipulation in the oil futures and derivatives markets.

Holder's Friday memo was not concerned with the causes for the oil market decline, only that no illegal activity prevents resulting lower prices being passed onto consumers.

"As you are all aware, toward the end of this week oil prices dropped significantly," the attorney general wrote. "Of course, there are lawful market forces that lead to price fluctuations and to differences between wholesale and retail price trends in these markets. This working group was created to identify whether fraud or manipulation played any role in the wholesale and retail markets as prices increased. If wholesale prices continue to decrease, fraud or manipulation must not be allowed to prevent price decreases from being passed on to consumers at the pump."

Some economists and analysts have suggested that, while increased scrutiny may be justified given heavy commodities trading, fraud cases are unlikely to significantly affect the price of gas. That's because, as Holder noted in his memo to the working group, most speculation in oil and gas markets is perfectly legal.

Sen. Bernie Sanders (I-Vt.) wants to change that. He sent a letter to Obama last week demanding that the CFTC impose new rules to crack down on excessive oil speculation by Wall Street traders.

Last year's financial reform bill requires the CFTC to craft rules reining in excessive speculation. But, citing inadequate market data, the agency failed to meet a key deadline on those rules earlier this year.

A recent Washington Post/Pew Research Center poll found that Americans blame greed and speculation for the run-up in oil prices more than any other factor.

Comments

[greensachs]

12:09 AM on 05/09/2011

Two things: No matter what crock these lords of finance (Fed,Treasury,primary dealers) try and represent, they are purposefully devaluing the dollar.

In so doing, they will inevitably inflate the price of commodities (including oil).
They've done this by covering-up loses on the largest banks balance sheets, letting them borrow billions from the Federal Reserve at practically zero interest rate than lend the funds back to the Treasury at the long-term T-Bond rate of 3% (making money hand-over-fist w/no risk) This has been a very substantial transfer from the Federal Reserve to the largest private banks (that adds to deficits).
Next quantitative easing; nothing more than a financial transaction which the Federal Reserve took some U.S. Treasury Bonds off the market, replaced them with cash, causing those funds to be available for speculation- driving down the dollar- speculation in gold and other commodities including destabilizing oil. ---None of these results would the Fed ADMIT to having intended.---

Professor Galbraith talks about Fed/Treasury policy and the recent S&P illogical credit warning...remarkably enlightening. http://youtu.be/dbV1TYrH6nI

Mr Holder needn't look past the Federal Reserve or Treasury for his "speculator" culprits.
Of course he knows this.

In order to keep this can kicking down the road (if the window of opportunity presents) they will engineer, through proprietary trading desks and friendly hedge funds, a pullback in commodities to give the appearance of thwarting inflation...WE SHOULD ALL KNOW BETTER.

[greensachs]

12:18 AM on 05/09/2011

I would add Dodd-Frank is without means of resolving a bank break-up of cross-border banks, so when a crisis appears, even bigger bailouts would likely apply again.

If I may also inquire...how is it that these largest banks are too big to fail---

...but the nations they recklessly lent to are?

[Jesse Taylor]

07:04 PM on 05/08/2011

Just curious how many people here are aware that Holder was the lawyer for Chiquita during their trial for funding death squads in Colombia. How does that make you feel about his sense of "justice"?

[Wesley Moore]

02:59 PM on 05/08/2011

Forgot to post the link.
http://oilgeopolitics.net/Financial_Tsunami/Oil_Speculation/oil_speculation.HTM

Loopholes: It was a decision in 2006 by the CFTC (U.S. Commodity Futures Trading Commission) to allow a complex method of “unreported” trading, routed through London’s ICE Futures Exchange. We’ve been “paying the price” ever since.

[Wesley Moore]

02:56 PM on 05/08/2011

Here is a very insightful article by F. William Engdahl in May 2008 about price manipulation in oil futures. He estimated that 60% of the price of oil was purely speculation. Another way to look at it is to say that oil is trading 250% higher than it should. He was close, it looks like as much as 79% of the oil price is created by speculation from financial institutions, or 490% more than it should be! What's most interesting is that in this 2008 article, he implicates investment companies like Goldman Sachs, Morgan Stanley & Lehman Brothers, along with support from hedge funds, as the main manipulators in this field. Oil prices were at record highs trading at $145 a barrel right before the crash in September 08. I'm not sure how many people noticed but we then experienced the sharpest drop in price right after the financial meltdown, the bankrupting of Lehman Brothers, and the national spotlight on all things Wall Street & bailout. Oil experienced a daily freefall for over 30 days resting at around $30 a barrel. Our Gasoline dropped from $3.69 a gallon to $1.99 in less than 30 days! Prices didn't rise much until post TARP. Not only did we get screwed out of our tax money, we went back to getting gouged with gasoline prices. Unbelievable! It's a Robber Barron Renaissance.

[CPA 4 Life]

03:16 PM on 05/08/2011

futures price = (SPOT PRICE + PV carrying costs) * (1 + r)^n

Where is the speculation in the spot market?

[Wesley Moore]

03:36 PM on 05/08/2011

Where is the manipulation in the spot market??? OK, I'm not going to waste a bunch of time here with you because your question let's on that you know nothing about this subject. 1) There is no "spot market" only a spot price. 2) Are you seriously saying that the future settlement contracts don't affect the spot price?
Good day sir.

[rigmoten]

10:54 AM on 05/08/2011

Does anyone believe that there is not fraud going on in the oil and gas market?

[vippy]

11:23 AM on 05/08/2011

undefined

[Jesse Taylor]

07:00 PM on 05/08/2011

With people like Holder in office, you can be sure there is fraud going on. If he's willing to protect corporations ability to fund death squads in Colombia, you can be sure that he's going to protect their right to steal.

[nevernot]

10:14 AM on 05/08/2011

So the fraud squad was told to ignore fraud perpetrated by the speculators responsible for the high oil prices and told them to make sure gas stations lower their prices immediately? Seems like a top down approach would net more benefit for the population as a whole. They need to make sure the speculation does not continue to drive the price up to the profit of a few, and make sure it's reasonable based on fair market principles. Until they do, Americans will continue to be taken advantage of.

[Stewart Goss]

09:40 AM on 05/08/2011

Silver fell because Comex increased margin calls 5 times. Traders were so short of cash that they had to liquidate positions in copper, oil and other commodities. That is what lead to the drop, nothing mysterious.

[hg wells]

09:40 AM on 05/08/2011

Time for a transaction tax on trading. My suggestion...up to a certain reasonable activity...no tax ...increasing transaction tax on increasing activity.

[CharlesCT]

09:45 AM on 05/08/2011

I agree. BUT, the repubs would never stand for this. One, it would bring in more money (they are out to bring down the Dems and Obama). Two, it would hurt their supporters (the millions that are made in speculation, can be given to the campaigns).

[Si1ver1ock]

09:07 AM on 05/08/2011

A 1% transaction tax might take the some of the steam out of rampant speculation. And fix the budget at the same time.

[nixrox04]

09:05 AM on 05/08/2011

A 10% plunge in one day and they still keep telling us it's global market forces at work.

Liars, cheats and thieves stealing from the pockets of American families with oil and commodity price manipulations...
It's an out of control Wall Street with traders and speculators robbing us blind while our own congress looks the other way aiding and abetting the corporate masters.

[CharlesCT]

09:55 AM on 05/08/2011

You got it right. We need an overhaul of the system. It has to be opened up and cleaned up. Bonnie and Clyde would be so proud of these guys. Free Market does not mean a license to steal and cheat with no consequences. I don't have a problem with people making money -- just don't steal it from me and laugh in my face. Make your own on the principles of the real Free Market.

[FlamingLibrul]

10:53 AM on 05/08/2011

You nailed it. People like Bernie Sanders are proverbially spitting into the wind, as the lone voices telling it like it really is. And Corporate Amerika wouldn't have it any other way. Until the serious people in this nation get seriously political, the reigning plutocrats will continue to gouge us in every way possible, while directing their congressional minions to keep bleating about the federal deficit- among the several shiny objects designed to distract us from what's really happening.

[heron77]

09:00 AM on 05/08/2011

The commodities market is global and much of our oil comes fromr global markets. How can the US remove it? Like the price of gold and silver, we have to live with the realities of a global economy.

[Barbara DeZan]

09:41 AM on 05/08/2011

True, to a point.

However, nothing stops our government from reigning in those who trade in our country.

Many countries have exchanges that are very successful without raping and pillaging the citizenry.... What we have here is unmitigated greed and little regulation.

I'm not concerned....the Obama administration will hack fraud in many places..including our stock exchange.

[CharlesCT]

10:11 AM on 05/08/2011

I am so sick of the "Global Market". All markets depend on Main Streets -- and that ain't Global. That is you and me. When a Walmart comes into a town, all the small book stores, pharmacies, hardware stores and nurseries close. Why is this good? OK, "WE" (the people save money). Do we? Have you been to a down town lately? Where is the tax revenue? Where is the commerce? The business? Walmart is the biggest and the richest company store in the world. It used to be called the State Store -- with lack of choice and long lines -- in the Soviet Union. Where is the competition? What if I don't want to buy China made. What if I am willing to pay for Americans to be employed and working? Where is my choice? I save money at Walmart so I can spend more on taxes and gas? I think we are being snookered -- as they say on Main Street.

[Keyop]

07:33 AM on 05/08/2011

Forget the plunge and investigate the surge on prices!?

[MWChris]

02:58 AM on 05/08/2011

A crack down on "excessive" speculation could result in more price volitility at the pump. l

[hg wells]

09:42 AM on 05/08/2011

...you mean the price at the pump might actually go down? Im all for price volitility...(up and down)...not so much for the constant increase.

[MWChris]

02:30 AM on 05/11/2011

It will go down quickly when the demand side of the market reacts. Two problems here: (1) I would not take action to reduce liquidity while the price is high, as that will slow down the price collapse when it comes. At least wait until prices go down. (2) People who are in the business of buying and selling gasoline need speculators to hedge price risk. Without them, they can't hedge and have to pass through price changes much more quickly.

[thrashertm]

02:25 AM on 05/08/2011

I bought oil and other commodities on the dip this week. Am I an evil speculator?

[jcaunter]

02:55 AM on 05/08/2011

Unless you bought them short, you're a *broke* speculator.

[basenji]

02:21 AM on 05/08/2011

WS makes money with these shakedowns of retail traders. No way you can stand on the way of the massive buying/ selling power of the mega hedge funds.