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Have oil companies manipulated prices?
Traders work in the NYMEX energy options pit.
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TEXT OF STORY
KAI RYSSDAL: Oil continued its generally downward ways today. Or at least we think it did. Since crude started climbing last year there's been all kinds of speculation about speculation in the market. So the Commodity Futures Trading Commission has spent most of this year trying to find out what's going on.
Today the Wall Street Journal reports that as part of its investigation the CFTC is looking into whether oil companies have been manipulating prices themselves. The theory is that by reporting that their reserves are lower than they really are, that false shortage would force prices higher.
From New York, Ashley Milne-Tyte reports.
ASHLEY MILNE-TYTE: The Commodities Futures Trading Commission didn't have any comment on the Journal's story. It would say only that its oil market investigations are ongoing.
Tom Wallin is president of Energy Intelligence. He says what's certain is that the oil companies report their inventory levels to the government, which then publishes the numbers.
TOM WALLIN: Every week when these numbers come out they're watched by the market and people in the futures market trade directly off of these numbers and they make immediate assumptions about what the trend in the market is, based on those inventory numbers.
So if the inventory numbers are low, traders buy and the price goes up. The oil company itself can then theoretically sell its oil for more than it would otherwise. Reporting inaccurate data to the government is against the law.
Amy Meyers Jaffe directs the Baker Institute Energy Forum at Rice University. She says the big oil companies already make billions of dollars producing oil.
Amy Meyers Jaffe: And it's just hard for me to believe that the companies would engage in illegal activity to make a little bit of money. Why would they risk the scandal?
Tom Wallin is also skeptical. He says a company could under- or over-report and potentially move the market once or twice.
WALLIN: It would be very, very hard to do this in a systematic way. And it would be inconceivable to me that this could be the cause of a . . . sort of a major surplus in the price of oil.
He says the U.S.'s method of collecting this information is more thorough than that of most countries.
I'm Ashley Milne-Tyte for Marketplace.
Be careful with tossing around guilty banks names Tom. I used three of the major banks name in a comparison on a story a few months ago before oil prices started to drop fast. This was a comment on the story mind you...I didn't write the story. I recieved a letter from 1 of the banks and an email from another stating if I didn't stop using them as a comparison to speculators they would file slander charges agains me...a normal person commenting on a story. I guess I hit a nerve...now a few months later I find what I stated before was really close to what the CFTC found...+80% speculation in the markets. Weird how someone can hit a nerve when speculating on something themself.
'Over A Barrel' by Raymond Learsy spelled this all out before $100 plus oil hit the market. The core revolves around a feeding frenzy for higher commodity prices based around the concept of perpetuated limited supply, or should we say perceived? Kai, please interview Raymond Learsy and he will illustrate the speculation quite well.
Um, DUH. My friend and I have been talking about this ever since Hurricane Katrina. Remember the price went up and never came down. Always some issue with the inventory data. Either inventory shrank, or, the build "wasn't as large as expected". Good to see the CFTC is looking into it, but really, their credibility is gone after they calimed no speculations, then oops, 81% speculation.
Goldman Sachs? Henry Paulson...will anything change?
