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?

Comments

[ndem]

Goldman Sachs' energy analyst was formerly employed by Talisman oil co in Sudan...the West was pressured into divesting and now in Sudan it is India and China...the GS analyst VERY visibly helped raise the price of oil...but what does he know that we do not? There will be a LOT of political and violent upheaval in oil countries in the months to come...it is all about perception...the Republicans WANT this!!!!

[cylindar]

Oil has no master, it only has servants. .

[Oakknollfarm]

It appears that Marc Rich and Pincus Green are still involved in oil trading; their progrom on the world just may be working. Maybe a future Democratic president will have the chance to pardon them again, after it is discovered what they are doing, get charged, flee, then return.

[Oldbuck]

One of the reason that drill baby drill is not going to work is because of the marketing of oil by the speculator in the market they never really hold the oil it all traded on futures a product of the Republican party. Look at when the largest rise in oil prices started just about the time Bush / Cheney were elected it started. Just get a chart or graft of the rise and fall of oil prices. Oil prices are not dictated by the availability of oil. These speculator get rich and never possess a drop of oil. Until the system is regulated the sprial upper in oil prices will never stop. It time to throw the bums out.

[Erdgeist]

The public makes a huge mistake by believing that prices follow demand. They don't. Prices follow speculators who continue to game the system with false reports of peak oil, etc. If there was an actual oil shortage we would be in long lines.

[DaCoach]

Living in Texas, you hear things about oil. The price of oil was primarily a product of the unregulated greed of the speculators in the commodity market. We were told it was a supply and demand problem, then a value of the dollar response. In truth, with the stock market down and the interest rates at critical lows, where did we expect all the available money to go for profits? The speculators found a market they could manipulate and $150 oil was born. The truth is that the cost to drill and refine and bring to market never supported the unconscionable price spiral.

[DuganS1]

How is it that the price of thermal coal went from $50 to $160 from January to July this year when it isn't traded on an exchange? And how did steel prices double, iron ore prices nearly double, and metallurgical prices more than triple in the same period without being traded on an exchange? Or how did the Baltic Dry shipping index more than double when there are no speculators involved? And how did the spot oil prices not delink from the futures prices? It is hard not to recognize the extremely bullish case for oil from fall 07 to the summer of 08 when global growth was tremendous, global slack oil capacity was small and shrinking, production was flat to down, and the federal reserve was pumping money into the financial system. The bottom line is that speculators were certainly heavily involved in oil futures but they weren't the "reason" oil went up so much.

[rsaillant1]

Observant eyes will note that immediately after CSPAN showed portions of Congressional
inquiries, a month or so back, into the possibility of speculation influencing the rise in oil pricing.....guess what?

The prices began a sudden and marked decline. Putting some light and a little heat on
those greedy insects has them scurrying for cover, and in the process of covering their tracks
they are divesting their speculative holdings. Good for Congress, good for us. Keep it up.
Get it down......further.

[wolf58]

Thank you for your post I have been saying the same thing, but people (not to smart ones) like to believe that the sudden price drop was due to Bush lifting the empty presidential ban on offshore drilling as well as the GOP's empty strike that t hey held in the dark after everyone else went home for the summer break.

[jacqmac]

UNFORTUNATELY-that vacation was just in time for McCain to go looking around ALASKA for an 'answer'-and who should he find? Awww come ON! GUESS!
But seriously-ENERGY speculation is really nothing new these last eight years. Isn't that right, Kenny-boy? Kenny-boy? Ooops! Sorry you're dead-but what about all those 'good ol' boys that drove the state of California to near bankruptcy over such a 'small thing' as a few million kilowatts of electricity? I've suspected for a LONG time that they are busy playing their 'computer games' at firms all around Wall Street. And who SAYS that speculation doesn't play a part in "DRILL, BABY, DRILL!" WE DON"T KNOW those reserves are THERE and IF THEY ARE-they won't be going down the pipeline to the Lower 48-they'll be going to Canada (which shares a part of the North Slope) and 'elsewhere'. Sixty years isn't such a long time. Iguess if you're 35 you're thinking that you will be 95 before the oil runs out and then it'll be SOMEONE ELSE'S problem. Okay-alright! I give up! Enjoy you're tremendous supply of oil and gas--3 PER CENT of the WORLD ain't much-nope, nope!

[dadw5boys]

They are running out of tankers and barrages to store oil in.

[olephart]

I wonder what would happen to the price of oil if the lamp posts outside the New York Mercantile Exchange were decorated with a few oil traders hanging from ropes.

Just kidding, we love the oil traders. I wouldn"t wish any harm to them. They"re an integral part of our financial society and provide a great public service. I speak only in jest.

[Vyvjala]

Its nothing more than a pseudo pre-election stimulus pakage, a political ploy orchestrated by the corporate mafia and their republican shills..........................

[sdaflm]

HuffPost's Pick

What I find amazing is that oil prices have gone down recently, as well as the cost at the pump. Although the decline as been small it makes me question the drill here drill now economic plan to reduce the cost to the consumer. If prices can decline even minimally without drillling as the Republicans want, it reveals the true desires of the oil men and speculators to continue to get rich off the backs of the working poor and middle class.

[KillTheMessenger]

It simply shows that Americans can use less oil if they have to. Demand in the US is down 800,000 barrels a day over the year. That is a huge reduction of demand and the market reacts to it.

If the US decides that it wants to be energy independent and legislators take serious steps towards that direction, you will see oil prices collapse on a grand scale, at least for a while.

Of course, the chances that we will take such an intelligent course of action are next to nil.

[RedneckDem]

You're exactly right. As soon as the price goes down out come the SUV's... Down go the solar panels... wind projects go bye, bye...

Then 8 years from now we'll al be collectively scratching our heads saying"What do you mean we're out of oil...". Sigh...

[JBS]

They went down in September 2004 too. And again just before the off year elections in 2006.

I wonder why?

[DuganS1]

The price of oil going down in the fall has nothing to do with elections. The fall is called the "shoulder season" because it's a period of low demand between the high demand summer driving season and the high demand winter heating demand (heating oil). Oil also went down substantially in the fall of 2005 and 2006.

[DuganS1]

Global oil demand has gone down dramatically in the past few months. Recent economic data shows that Britain and the rest of Western Europe are in recession, Japan is in recession, and growth has slowed so much in China that the government is considering stimulus. Oil is currently at $106 a barrel, down from a peak of $147.