Specific Criminal Inquiries of CFTC Regarding Oil Markets

Discussion in 'Wall St. News' started by ByLoSellHi, May 31, 2008.

  1. According to the WSJ:

    *The CFTC’s announcement about its oil investigation suggested a single, broad probe that began in December 2007. But people familiar with its enforcement priorities say the agency is pursuing multiple oil investigations, and that many of them relate to one another. CFTC enforcement chief Gregory Mocek said the agency has about 60 manipulation investigations open in various commodity markets.

    * The CFTC has expanded an investigation, disclosed previously by The Wall Street Journal, into alleged short-term manipulation of crude-oil prices via a widely used price-reporting system run by Platts, a unit of McGraw-Hill Cos. One suspicion is that energy companies and traders have at times issued a flood of orders during a time window used by Platts to determine its reported prices for physical oil transactions, then used the potentially distorted prices to make profits in other markets.

    * Another area of concern for CFTC regulators is whether the owners of crude-oil storage tanks use their knowledge to make bets on oil-futures markets. In theory, the owner of a tank could issue misleading information about the tanks being full or empty, leaving the wrong impression about whether oil is in plentiful supply. Then they could make trades to profit on the misunderstanding.

    * Large speculators such as hedge funds often use unregulated over-the-counter platforms, whose prices may affect prices on regulated markets. Mr. Chilton, the CFTC commissioner, said regulators are looking at cases where traders have made simultaneous bets on unregulated and regulated markets, in particular in West Texas Intermediate crude-oil contracts.
  2. timbo


    If dollars are plentiful, who wouldn't speculate?
  3. BLSI,

    very good reporting!

    freedom isn't free, it was paid for with the sacrifices of so many....

    free markets aren't free, they need regulation to prevent the extremes that we see evidence in the fuel and futures markets that have swept the American populace for the last six years, unabated....


    whether you get hecklers or otherwise trying to shut you up, down or dissuade you,

    keep this thread going and reporting on their (CFTC and related news stories) progress....

    we all benefit, because after we take off our (delusory hats) hats as traders, we are consumers and all face these insane "pain at the pump" prices that have been manipulated out of reason.....
  4. timbo


    First it was China demand coupled with first world and now has borne speculative? Stables don't double annually.

    This isn't a trading issue, rather a bail out expense. I would be more interested in the CFTC investigating the FOMC.
  5. explain please....

    what is the FOMC?

    how do you see it lacking in its charter and charge to police the markets?

    what are recent news articles or trading commentary on these events?

    incidently, this is a trading issue, as it controls both the trading markets and heavily influences it as well as us as traders, citizens, tax payers and such....
  6. Cheese


    The only hat an ETer should be wearing is that of a trader. But more than that, you should want only to achieve success and make your fortune as a trader utilzing free markets. This site, if its name is to be believed, is to encourage each individual player to become an elite trader.

    Now what you also get is a plethora of consumer freaks and other oddities infesting this site who alas are only promoting their personal ignorance or prejudices to a trading audience whose task instead should be to win in the markets they play in.

    Markets work. If the price of oil is high, as it is, it rests ultimately on the real or anticipated strength of demand over supply. If it suggests anything outside trading the market itself, it is that alternates to oil should not just be deployed but done so on a big enough scale that has yet to be realized.
  7. Oh really?

    So, FOR EXAMPLE, let's assume that those docking information of oil storage tankers collude, and as a group, falsely report that hundreds (or thousands) of such tankers are empty, when in reality, they are each full of oil.

    Let's further assume that enough such oil is stored to impact inventory reporting so that 4 million barrels are 'depleted' during any given week.

    How, exactly, is the free market going to deal with this kind of corruption without creating inefficiencies?
  8. lmao.

    I didn't realize there was any difference. They're taking splitting semantical hairs to a whole new level.

    When the 'Great Oil Scam' of 2007 and 2008 breaks, it will go down in the history books.

    What's the saying? The more participants involved in a scam, the greater the chance of uncovering it?

    That's why we found out that the 1919 World Series was 'fixed'.

    'Peak Oil' my ASS.
  9. Head Story at Google today:

    Oil trading probe may uncover manipulation
    But overall, any wrongdoing is likely to play a small part in soaring crude prices. Meanwhile, speculators aren't expected to hang.

    Paste this link into your favorite RSS desktop reader
    See all CNNMoney.com RSS FEEDS (close) By Steve Hargreaves, CNNMoney.com staff writer
    Last Updated: May 31, 2008: 10:28 AM EDT

    Mideast need limits oil supply

    More VideosSpecial Reportfull coverage

    Commuting: More than pain at the pump
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    NEW YORK (CNNMoney.com) -- Amid soaring oil prices that some say are caused by nothing more than rampant speculation, the government Thursday announced a wide ranging probe into oil price manipulation and said it would get more information on the effect investors are having on the market.

    The measures, undertaken by the Commodity Futures Trading Commission after pressure from angry lawmakers, do two things.

    First, they'll attempt to gather more information from index funds and other non-commercial users of oil. They'll also seek information on oil trades made outside the U.S. on exchanges like the IntercontinentalExchange Europe (ICE) where the CFTC has no oversight and has been unable to get more detailed information.

    The second thing on the CFTC's agenda is an actual investigation into possible price manipulation - most likely by a commercial user of oil like a production company, shipping company, or storage company.

    Information gathering
    Recent investor interest in commodities is an issue of intense debate. Some say investors, who have been funneling money into oil and other commodities over the last several months amid rising inflation and falling stock prices, are unjustifiably driving up the price of oil and gas simply because they have no other place to put their money.

    Others say tight supply and strong demand are the real reasons behind this investor interest, and the market is functioning properly to limit demand and increase supply.

    CFTC has previously said that it has not found any evidence that speculators were artificially inflating prices.

    "Data used by Commission staff show that price changes are largely unrelated to fund trading," according to written testimony before a Senate hearing earlier this month by CFTC Chief Economist Jeffrey Harris. "Broad-based manipulative forces are not driving the recent higher futures prices in commodities across-the-board."

    Neither Harris nor any other economist at the CFTC could not be reached for comment.

    According to a chart presented in its congressional testimony, it appears the CFTC used data from 2007 to reach its conclusion.

    Additional reporting by index funds and other non-commercial buyers of crude will help CFTC make better analysis, said Michael Haigh, head of U.S. commodities research at the investment bank Société Générale and a former economist at the CFTC.

    Even so, he doesn't expect the CFTC's overall conclusion - that investors aren't unjustifiably driving up oil prices - to change much.

    More regulation on the way?
    But Haigh said oil traders see this request for additional information as perhaps a precursor to broader regulation, like decreasing the amount of contracts speculators are allowed to hold or raising the amount of money investors have to put down to buy those contracts.

    "The fear that this might happen may drive people out of the market," he said. "There could be a run for the gates."

    Oil prices fell Thursday by over $4, one of the biggest declines in recent weeks. One expert attributed the slide to the investigation.

    "The traders now know that someone is looking over their shoulder," said Michael Greenberger, a professor at the University of Maryland and a former CFTC official. "Their phony sales are being watched, and in one day there was the biggest drop in 2 1/2 months."

    If there is a run for the gates, Haigh said prices may or may not fall, but liquidity would be reduced, leaving the market more vulnerable to manipulation by a single participant.

    Possible manipulation
    And that's the second thing the CFTC is looking into - "practices surrounding the purchase, transportation, storage, and trading of crude oil and related derivative contracts," the agency said in a statement.

    This most likely means manipulation of the physical oil market, not typically done by speculators but rather by commercial players who might literally withhold oil from the market in an attempt to drive prices higher.

    The CFTC has found evidence of this in the past. BP recently settled a suit that alleged the company tried to corner the propane market to inflate prices in 2003 and 2004. BP agreed to pay a $303 million settlement.

    Haigh thinks it's likely CFTC will find evidence of this again given that the agency has been investigating for six months and has now chosen to make it public. But he stressed that a single player acting alone would in all likelihood not have a huge influence on prices.

    "It's difficult to imagine a price runup of $90 to $135 being done by one entity," he said.

    He believes the CFTC took the unusual step of announcing the investigation to placate angry lawmakers who may be tempted to enact broader regulations on the oil futures market that would hamper trading.

    One analyst said the CFTC investigation will have little effect.

    "This investigation is just a way for the government to divert attention away from the fact that it hasn't created a viable energy policy," said Mike Fitzpatrick, an analyst at the brokerage MF Global in New York. "Ultimately, fundamentals rule the markets...this investigation is going to wind up producing nothing."

    Not everyone agrees fundamentals rule the market.

    "There is a theory that the price of crude oil is being driven up not by supply and demand principles, but by speculators using what are called dark markets, markets that can't be watched by the public or regulators, to manipulate the price of crude," said Greenberger.

    First Published: May 30, 2008: 2:57 PM EDT
    #10     May 31, 2008