Probe of Crude Oil Trading Disclosed
Friday, May 30, 2008
During continued volatility in oil prices, federal regulators said yesterday that they had been investigating crude oil trading, storage and transportation for the past six months with a focus on possible "futures market manipulation."
The Commodity Futures Trading Commission, which normally keeps investigations confidential, said in a statement that it was "taking the extraordinary step of disclosing this investigation because of today's unprecedented market conditions."
Those conditions have sent oil prices to record heights, adding to the U.S. trade deficit, hurting consumers and companies, and weighing heavily on the nation's economy.
Gregory Mocek, director of enforcement at the CFTC, said five senior trial lawyers, "some of the most experienced prosecutors that we have," and other investigators were engaged in the inquiry. "The scope is quite broad," Mocek said, adding that the commission was looking at the "national crude market," including trades on regulated exchanges, cash trades, storage, pipeline operations and shipping.
Yesterday was another chaotic day for crude oil prices, which had soared about 30 percent since the start of the year. This time, however, prices tumbled $4.41, or 3.4 percent, to $126.62 a barrel on the New York Mercantile Exchange as traders tried to decipher new U.S. inventory numbers. The Energy Information Administration said petroleum stocks fell sharply, which would ordinarily drive prices up, but it blamed the drop on "temporary" delays in oil tanker off-loadings on the Gulf Coast.
Elsewhere, there were scattered signs recently that worldwide demand for petroleum products might be easing. MasterCard, the second-biggest credit card company, said this week that U.S. gasoline demand dropped 5.5 percent last week. Meanwhile, Indonesia, Taiwan, Sri Lanka and Pakistan have recently indicated that they would trim fuel subsidies and raise prices.
In addition, Bloomberg News reported that the United Arab Emirates representative to the Organization of the Petroleum Exporting Countries told reporters in Dubai that oil price increases have been "too fast, too high" and were "not good for producers or consumers."
The CFTC said its investigation started in December, before this latest surge in prices but after an earlier surge that took oil prices over $90 a barrel.
Congress has been pressing the CFTC to take tougher action to stop what lawmakers call "speculation" -- which is not illegal -- and possible unlawful manipulation of oil markets. Some lawmakers have suggested that the commission discourage speculation by increasing margin requirements so that traders would have to put up more cash to buy positions on commodity markets.
The CFTC said that in addition to the investigation, it had reached agreements with British and European regulators to share more information about oil markets. It also said it would take steps to increase transparency by getting more information from index traders and other financial players.
It was unclear whether the commission's announcements were a reaction to congressional pressure, but they were praised by many lawmakers. Rep. Edward J. Markey (D-Mass.) said he was pleased, adding that "the CFTC must vigorously pursue all leads to protect the American people from market manipulation during a time of record prices at the pump."
One of the CFTC commissioners, Bart Chilton, wrote a letter dated May 9 to Sen. Charles E. Schumer (D-N.Y.) praising the work of Congress in scrutinizing the rapid rise in gasoline prices. "It's not good enough to say, let the markets take care of this, when there is even the possibility that uneconomic forces may be at work," Chilton wrote.
Mocek said yesterday that the CFTC had about 60 price manipulation investigations in progress aside from the one looking at the national crude oil market. Some of those investigations also involve oil and gas firms or traders, he said.