US Oil Price Manipulation Investigation Underway- Fox In the Henhouse

[chill_wind]

U.S. Probes Crude Oil Trading for Price Manipulation

(Update3)

By Matthew Leising and Alexander Kwiatkowski

May 30 (Bloomberg) -- The U.S. Commodity Futures Trading Commission, the watchdog for commodity transactions, is investigating U.S. crude oil trading to determine whether the surge to record prices is the result of manipulation or fraud.

The CFTC has been investigating the transportation, storage and trading of crude oil in the U.S. since December, it said in a statement posted on its Web site yesterday. The probe includes oil futures contracts, which have soared as much as 40 percent this year to a record above $135 a barrel.

``It's unprecedented for the CFTC to say that they are in the midst of an investigation.'' Michael Haigh, head of U.S. commodities research in New York at Societe Generale SA, and a former CFTC associate chief economist, said in an interview. ``They may be under pressure from Congress to look at this market given the high prices.''

(sniP)

Confidential

``The Commission is taking the extraordinary step of disclosing this investigation because of today's unprecedented market conditions,'' CFTC Acting Chairman Walt Lukken said in the statement. The Washington-based regulator, which generally keeps its inquiries confidential, didn't say when the probe will end and didn't name any companies being targeted. The details of the investigation were confidential, it added.


(snip)

Lip Service

``The CFTC is paying lip service to congress by having to be seen to be investigating speculation,'' said Rob Laughlin, senior broker at MF Global Ltd. in London. ``They will spend months, and quite possibly millions of dollars, to find nothing. The reality is now there are thousands more participants trading oil, and oil contracts, especially since electronic trading has become the norm.''

more: http://www.bloomberg.com/apps/news?pid=20601082&sid=ad.d2jiev_EA&refer=canada

Consumer Watchdog Welcomes Investigation of Oil Price Manipulation,
Cautions That CFTC May Be Ill-Equipped

Group Calls for FBI, Justice Department Participation, Public Support by Bush

CONTACT: Judy Dugan, 310-392-0522 x305, cell 213-280-0175; or John Simpson x317

May 29, 2008

Santa Monica, CA -- The announcement that federal regulators are investigating possible price manipulation in oil futures markets is a welcome indication that the Bush administration accepts the possibility of manipulation in $130 oil prices, said Consumer Watchdog. However, the group expressed doubt that the Commodity Futures Trading Commission could conduct such an investigation on its own and called for explicit support from the White House, as well as participation by the FBI, Justice Department investigators, or both.

The CFTC itself has consistently expressed doubt that manipulation has occurred, said Consumer Watchdog. At a Senate energy hearing as recently as May 20, Jeffrey Harris, chief economist of the CFTC, stated that he believed prices that had already hit $130 were explained by the weak U.S. dollar, demand from emerging economies, world unrest, bad weather and supply disruptions. Other analysts at the hearing strongly suggested that such “market fundamentals” could not explain the price hike.

“On its face, the investigation smacks of the fox investigating a hen shortage in the chicken coop,” said Dugan. “It is up to the CFTC and the Bush administration to show that the investigation is well-staffed and unrestricted.” (See Harris testimony here.)

Consumer Watchdog noted that oil prices fell sharply Thursday as news of the investigation broke. A number of analysts have predicted that better market oversight alone could sharply drop oil futures prices.

Adding to doubt about the CFTC’s capability to fully examine market manipulation, Sen. Jeff Bingaman of New Mexico, chairman of the Senate Energy Committee, was highly critical Wednesday of the CFTC’s reluctance to see manipulation in energy markets, sending the regulatory body a scathing letter. (See more details on Bingaman letter here.)

The CFTC Thursday also announced measures to beef up oversight of both regulated and unregulated energy markets, though due to lack of regulatory authority the effort involves only voluntary information-sharing with unregulated trading exchanges. (See full CFTC announcement here.)

more: http://www.oilwatchdog.org/articles/?storyId=20441&topicId=8059


Oilwatch blog.......

Regulation Hinted, Oil Price Drops

05-29-2008

by dugan



It'll take a few days to see what's really going on in oil markets, but still... a $4-a-barrel price drop in crude oil markets today followed news that federal regulators were investigating oil trades, and increasing oversight just a little. It's about time, though I have my doubts about this administration running a tough investigation. There were multiple explanations of the drop to near $126 a barrel, including a slightly stronger dollar. The timing was still interesting.

A government report on unexpectedly reduced oil supplies this morning shot prices upward, then they dropped fast after the Commodity Futures Trading Commission announced its investigation of market speculation and some new cooperation with unregulated European markets. Like OilWatchdog, some analysts tied the price drop to the federal investigation. From the AP story:

Disclosure of the investigation may have contributed to oil's declines, analysts said.
http://ap.google.com/article/ALeqM5i5TtajgUpSm7KY5jf-lCJGHBB-tAD90VG6K01

"That's regulation that could change the landscape of what people have gotten used to," said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com. ...

"This was the first time we've had a bearish reaction," to news that in the past would surely have driven prices higher, Cordier said.

more: http://www.oilwatchdog.org/articles/?storyId=20453

Analysts say oil is the new dotcom bubble

Kathryn Hopkins
guardian.co.uk, Friday May 30 2008


Oil has reached "unsustainable" levels and is heading for a sharp correction, according to analysts at Lehman Brothers, who liken the spiralling price to the dotcom boom and bust of 2001.

In the report, "Oil dotcom," Lehman's Michael Waldron says the correction could come as early as September: "We think that the crude oil market should turn and we think it will happen by the end of the year."

The report predicts that Brent, which currently stands at $126.40 a barrel, could fall to $90 a barrel by the first quarter of 2009.

However, Walden believes that the price, which hit a peak of $135 last week, will go up again before it goes down, partly because of "bullish headlines". Other factors likely to drive the price higher this summer include the hurricane season and increased demand from China as it rebuilds following the devastating earthquake.

"As in the dotcom period, when 'new economy' stocks became popular, a growing number of Wall Street analysts have been repeatedly raising their forecasts as oil prices have risen. These revised forecasts have been partially responsible for new investor flows, driving prompt and forward prices to perhaps unsustainable levels," the report said.

more: http://www.guardian.co.uk/business/2008/may/30/commodities.oil?gusrc=rss&feed=networkfront

[grannylib]

1. Didn't George Soros recently say the same thing about the bubble?

I could be nuts, too...

[HCE SuiGeneris]

2. The political appointees of the Chimp regime will not effectively investigate this issue.

We need another investigation run by Democrats and non-corporatists.

[Quantess]

4. True. Because Bush is best friends with the top oil executives.

They got him into office for their own financial gain.

[HCE SuiGeneris]

6. It is being covered on CNN at least.

Maybe exposure will create some legitimacy.

[Uncle Joe]

3. The Cheney/Bush maladministration polices have been manipulative and they know it,

everything they've done has been for the purpose of jacking up the price of oil.

They're just trying to squeeze every last dime out of the American People for their cronies before they leave power.

[truedelphi]

5. Yes the oil bubble probably will break by September

If we aren't dropping bombs on Iran.

But if things stay "peaceful" the Administration needs to see that their Saudi friends get OPEC to drop the cost of oil so that McCain can factor in a small gain athe polling places.

The cost of oil dropped right before the last two elections as well.

[damntexdem]

7. Why don't they appoint an independent investigator?

I bet Darth Cheney would be willing to fill the role. ;-)

[chill_wind]

8. Speculation of another kind....or perhaps just wishful thinking

CFTC Investigation Roils the Oilpatch

by StockJockey
Thursday, May 29, 2008 - 6:07 pm

The dramatic decline today in the price of crude oil (USO-AMEX) might be the first act in a drama that plays out over the next several months.

The big money crowd on Wall Street is whispering that an ongoing probe will snare high profile energy traders, hedge funds and government officials from both sides of the aisle. This could get uglier than today's dramatic puke in energy prices. If my sources are on the money, There Will Be Blood by the time this brewing scandal runs its course:

(snip)

Conspiracy theory? Not so fast, charts don't lie. More downside ahead?

see 5-day chart and full article: http://www.1440wallstreet.com/index.php/site/comments/cftc_investigation_roils_the_oilpatch/

Regulators step up probes of trading in oil markets
The CFTC disclosed a broad, nationwide probe into potential oil-market manipulation and will expand surveillance of energy markets.

Ian Talley, Ann Davis And Gregory Meyer, Wall Street Journal
30 May 2008 04:49

"(...)

Still, suspicions have lingered that speculators have helped drive oil prices higher. At a series of congressional hearings over the past month, energy consumer groups and some financial insiders have contended that large investments in commodity futures by hedge funds and pension funds are distorting prices.

Congress is weighing proposals to increase collateral requirements for futures traders and otherwise restrain their activities. The implied hope is that such moves will help rein in prices that have almost doubled in a year.

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. Platts has said its system has safeguards to protect against manipulation. Subpoenas on the matter have gone out in several stages, people familiar with the cases say.

The agency has also been questioning traders about similar activity in the jet-fuel market, people familiar with the matter say.

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.

more:
http://www.moneyweb.co.za/mw/view/mw/en/page94?oid=208946&sn=Detail

[chill_wind]

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