Oil speculators charged with market manipulation

Oil drilling rigs in Midland County, Texas.

UPDATED REPORT

Commodities regulators are suing two oil investors and their Norwegian-owned trading firms. The charges from the Commodity Futures Trading Commission actually date back to 2008 when international traders allegedly pocketed $50 million.

From Washington, here's Marketplace's John Dimsdale.


JOHN DIMSDALE: U.S. regulators say two well known traders -- one in Oklahoma and one in Australia -- bought up nearly 5 million gallons of oil to create an artificial shortage in early 2008. They then bet on oil prices to fall and sold their hoard of oil at a big profit.

The two traders had been able to do this twice before investigators stopped it. It's taken three years to put the case together.

Julian Lee at the Center for Global Energy Studies says that's because of all the complicated auditing. Still, he says, the possible fines in this case of $150 million should make speculators take notice.

JULIAN LEE: It's the fact that cases are brought and that shows people are alert to and watching what's going on in the market hopefully acts as a deterrent against using markets in ways for which they were not intended.

In current tight oil markets, the Justice Department is investigating reports of market manipulation. But Lee thinks speculation is isolated. There aren't enough cases to drive global oil prices.

In Washington, I'm John Dimsdale for Marketplace.


ORIGINAL INTERVIEW

JEREMY HOBSON: When oil prices rise the first target for blame is often speculators -- investors who don't actually need oil, they just want to profit from it.

Well, U.S. regulators say they've cracked a big speculation case. The Commodity Futures Trading Commission is suing two oil traders who allegedly pocketed $50 million back in 2008 right before high oil prices helped spark the global recession.

Let's get the details now from our Washington Bureau Chief John Dimsdale who''s with us live. Good morning John.

JOHN DIMSDALE: Good morning Jeremy.

HOBSON: So tell us how this alleged oil speculation scheme worked?

DIMSDALE: Well, in early 2008 these two traders bought nearly 5 million gallons of oil sitting in Oklahoma. Allegedly, they were trying to send the market a false signal of a shortage. The traders had bet on rising prices. And once oil became more expensive, they then changed their bets to falling prices, and suddenly dumped their hoard of oil on the market. And according to regulators, they went through this cycle twice and were about to do it a third time when the investigators caught up with them.

HOBSON: And why are regulators only moving against this speculation now -- three years after it happened?

DIMSDALE: Well, the government says it takes a lot of forensic auditing to figure out what exactly is going on in these fluid markets. Julian Lee at the Center for Global Energy Studies says of course it would be a more effective deterrent if regulators could crack down more quickly. But --




JULIAN LEE: There's a fine line that has to be drawn between trying to determine who is building up inventories of oil because they need it to run their operations and who is doing it purely for speculative purposes.

Now right now, the Justice Department is looking into reports of speculation in the current tight oil markets. But Lee thinks these are isolated cases, not big enough to be the main reason for high prices.

HOBSON: Marketplace's John Dimsdale in Washington, thanks John.

DIMSDALE: You're welcome.

About the author

As head of Marketplace’s Washington, D.C. bureau, John Dimsdale provides insightful commentary on the intersection of government and money for the entire Marketplace portfolio.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...