In a compelling headline today we learned that "U.S. Federal Trade Commission Said to Open Probe of Oil Price-Fixing After EU."
Finally, is our government waking up to the perversion of oil prices? Perhaps. But we have learned that saying so doesn't make it so. Amazingly, amid much fanfare, the Obama administration announced the 'Oil and Price Fraud Working Group.' That was over two years ago and since then we have heard not a single peep from that august body. One can well imagine that the many tentacled oil lobby, the oil trading desks of Wall Street's bank holding companies, and the Good Ole Boys from this Chicago cronied administration -- exemplified by the clout of the Chicago-based behemoth the Chicago Mercantile Exchange Group (CME Group), the world's leading derivatives marketplace with trading in energy futures contracts that have regularly exceeded three million contracts a day (each contract represents 1,000 barrels) -- will work day and night to neuter this initiative.
The EU (European Union) probe is focused on the indexed prices formulated and published by such agencies as Platts. Yet the core price mechanism, subject to the greatest adulteration, the Brent Crude Benchmark as traded on London's ICE exchange, is being overlooked, at least initially.
Will the FTC get into the sinews of the oil price distortion? That remains to be seen. That the WTI (West Texas Intermediate oil contract) is trading today at over $95/barrel on the CME-owned NY Mercantile Exchange is beyond logical comprehension, especially when one considers that U.S. inventories are near all time record highs, that American oil production is expanding dramatically, American consumers are using significantly less gasoline/diesel than even a few years ago, and natural gas heating units are replacing oil heating units in homes all over America. Most tellingly, that some four years ago, within a month of the Obama presidency, the price of oil was $33/barrel. What other commodity has had such a dramatic rise while supply increased and consumption declined?
Joaquim Alumina, Europe's top antitrust official, was quoted as saying this past May 28th that if oil price manipulation did take place, it would have caused "huge" damage to consumers. What is unconscionable is that it has been said so rarely by those in whom we have entrusted governance.
Frighteningly, we also learn that the Commodity Futures Trading Commission (CFTC) is reviewing complaints of bogus bids and offers for WTI oil contracts. An exercise known as "spoofing," which is illegal, whereby bids or offers are entered with the intention of canceling them before the trade is executed, aimed at moving prices in a given direction on the CME Group's NYMerc, the world's largest energy-futures exchange. CFTC commissioner Bart Chilton reported only yesterday that he had received more than a half dozen complaints from traders.
Certainly the FTC has its work laid out. The big question now is will they follow through or go the way of the "Oil/Gas Pricing Fraud Panel" of April 2011 from which we have yet to hear a single note?
Follow Raymond J. Learsy on Twitter: www.twitter.com/raymondLearsy