Michael Giberson
At Streetwise Professor, Craig Pirrong examines the CFTC’s case against alleged oil market manipulators Parnon Energy, Arcadia Petroleum LTD and Arcadia Energy (Suisse), all affiliates of the trading firm Arcadia. Whatever the ultimate merits of the case, he says the CFTC is going to have trouble making the charges stick. In part the CFTC must demonstrate that the manipulators were big enough the move the market, but the oil market is huge. Not surprisingly, the price data don’t always stack up in support of the CFTC story. (But be aware that attempting to manipulate a commodity market is illegal whether or not the manipulation succeeds.)
Pirrong concludes with the good news implied by the case: “CFTC has been examining the oil market with a fine tooth comb going back to 2005 if memory serves. If this is the best case they can find after all that, the oil market must be pretty damn clean.”
Also note, with respect to the public image of speculators, that the manipulation alleged intended to push some prices up and other prices down. The case doesn’t support the standard public narrative of speculators driving oil prices endlessly higher.
MORE:
- James Hamilton explains the case at Econbrowser without stating his own view of the merits.
- John Kingston at Platt’s The Barrel blog, “When traders dismiss these allegations as nothing more than normal trading activity, they’re ignoring a simple fact: the CFTC apparently doesn’t think so.”
- Robert Wenzel one and two, “Bottom line, [a strong oil market] they got in ahead of a major move. Beginning and end of story.”
- Platt’s provides a link to the CFTC complaint as filed in U.S. District Court.
At the E2 Wire blog, some indication of the current political environment within which the agency is operating:
Senate Democrats blasted the chairman of the Commodity Futures Trading Commission Thursday, arguing he is not moving quickly enough to impose new limits on investors in oil markets aimed at curbing “excessive” speculation. Such speculation, the lawmakers argue, is pushing up oil and gasoline prices.
… Democrats have turned up the heat on the CFTC in recent weeks as high gas prices remain at the top of the congressional agenda. They blame oil market speculation for high prices and say the CFTC limits will temper pain at the pump.
Seven Senate Democrats, led by Sanders, met with Gensler in Sanders’s office Thursday afternoon to call for the immediate implementation of regulations imposing position limits, or caps on the number of futures contracts that a market player may hold, in crude oil markets.
… “All the senators present feel that Dodd-Frank provided the authority and power to the CFTC to get speculators out of the oil markets, that that’s very important to the economy, and the action by the CFTC is way too slow,” Sen. Jeff Merkley (D-Ore.), who also attended the meeting with Gensler, told The Hill. “They are in violation of the law at this point.”
Meanwhile, Republicans in the House of Representatives have voted to cut the CFTC’s budget by 15 percent.
Of course there is no reason to think that the CFTC’s filing of a complaint dealing with oil market trading in 2008 has anything at all to do with the current political pressures on it coming from Congress and the Administration. After all, the CFTC “is an independent agency of the United States government,” Wikipedia says so.