September 21, 2021

U.S. Commodity Regulators Sue Oil Traders

United States authorities are suing three companies and two individuals for reportedly manipulating the crude oil market in early 2008, when supplies were tight and the world oil price was cracking $100 a barrel.

The Commodity Futures Trading Commission asserted that in January 2008 the defendants bought millions of barrels of physical crude oil at Cushing, Okla., one of the main delivery sites for West Texas Intermediate, the benchmark for American oil.

The defendants, part of the Arcadia group of energy trading companies, headquartered in Switzerland, also invested in large positions in the oil futures market, and profited when their expansive buys in the physical market pushed the oil futures higher.

They then bought short positions in the futures market and dumped their holdings of physical oil, most of it in the course of one day, making money again when the oil price fell.

“According to the allegations, defendants conducted a manipulative cycle, driving the price of W.T.I. to artificial highs and then back down, to make unlawful profit,” the commission said in a statement.

The civil enforcement action, filed in the Southern District of New York on Tuesday, names two individuals, James T. Dyer of Australia and Nicholas J. Wildgoose of California, and three related companies, Parnon Energy of California, Arcadia Petroleum of Britain and Arcadia Energy, a Swiss company. Calls for comment left at Arcadia Petroleum in London were not immediately returned. A person who answered the phone at Arcadia Energy in Switzerland said that he was unaware of the complaints and that Mr. Dyer and Mr. Wildgoose were on vacation and unavailable for comment.

The commission would not say whether it was conducting any other investigations into oil price speculation. This case appears to be one of the few to emerge so far from the sharp run-up in oil during 2007 and 2008.  

The oil price increase in 2008 drew intense political scrutiny amid suspicions that speculators were artificially manipulating markets before prices dropped again at the end of 2008.

Oil prices have again moved higher this year, exceeding $110 a barrel and again raising questions about whether oil is being pushed higher by fundamental market factors or by speculation.

Last month, President Obama said he was asking Attorney General Eric H. Holder Jr. to set up a working group specifically to look into the issue of fraud in oil and gas markets and “safeguard against unlawful consumer harm.”

In this latest case, the commission estimates the traders made about $50 million in profits from their actions.

In the last few years, the commission has settled a handful of cases of manipulation in the natural gas market.

In 2007, it settled charges for $1 million against the Marathon Petroleum Company for trying to manipulate West Texas Intermediate crude oil in 2003.

The commission brought an action similar to its latest case in 2008, asserting a company called Optiver Holding, a global proprietary trading fund headquartered in the Netherlands, used a trading program to issue rapid-fire orders to manipulate the crude oil market in 2007. That case, which is pending, involved allegations of manipulation of futures contracts for light sweet crude oil, New York Harbor heating oil and New York Harbor gasoline.

In the current case, the commission asserts, the defendants repeated their buying and selling cycle once and were preparing to do it again, but stopped in April 2008 when the commission became suspicious and asked for information. It was not until later in the year, after the defendants had ceased their reported actions, that oil prices soared even higher — reaching $145 in July 2008. By the end of the year, prices had fallen back to around $44. Currently, W.T.I. is around $100.

At one point, the defendants bought about 4.6 million barrels of crude oil, which was estimated at the time to account for two-thirds of the estimated seven million barrels of excess oil then available at Cushing, according to the allegations.

The commission could seek penalties of up to $150 million, plus the $50 million reportedly made in profits, from the defendants. The defendants could also be banned from trading in United States markets.

Article source: http://www.nytimes.com/2011/05/25/business/global/25oil.html?partner=rss&emc=rss

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