10/06/2008 05:12 am ET Updated May 25, 2011

More About Speculation and Manipulation In Oil Trading

"Sacre Bleu!" (liberal translation: "Holy Cow!") -- the Wall Street Journal informs us that "Commodity-Market regulators are investigating whether energy market players are injecting false data into the marketplace to influence perceptions about crude oil supply and demand" ("Oil-Supply Data Probed for Manipulation," 09.04.08). That inventory numbers are being dressed up (or down) to suit house trading positions. That occasional physical sales are being made to orchestrate price blips. The CFTC is taking depositions and demanding documentation from some of the trading houses including Wall Street firms. Significantly, and long overdue, the CFTC has also asked about storage holdings and other physical assets traders own and control. This all in keeping with the CFTC's previously announced nationwide investigation into the purchase, storage and financing of oil trading.

These are needed steps and it is good news that the CFTC is awakening from its reverie and beginning to deal with the core issues of oil trading. But it is still too much of a hit/miss operation with a degree of insouciance. As example, the WSJ reported that enforcement attorneys have been "pursuing a theory that some traders have leased oil tankers as floating storage to make oil inventories on the ground seem less well supplied than they really are." Really?! Storing crude in floating tankers to influence oil prices has been a trading tool in the oil patch at least since the 1970s when Marc Rich kept myriad tankers at anchor off the port of Rotterdam, paying tens of thousand in daily demurrage fees, while the value of his cargoes escalated by the millions. And until recently the significant volume of floating storage held in tankers anchored offshore Kharg Island holding Iranian oil waiting for markets to offload their cargo.

And finally, while these steps, if executed effectively can help bring about a meaningful understanding of how oil is traded and directed, what is being done about the Sovereign Wealth Funds, many of whom are OPEC members and/or their agents who have every incentive to keep prices high and higher and ample means to game the market. And not to be overlooked, the highly politicized and ambitious Russians. What is being done by the CFTC and the International Energy Agency to monitor the actions of these stupendously well heeled and motivated players?