Banks Manipulating Oil Prices?

I ran across this posting on a blog a couple of days ago:

Last month, Sen. Bernie Sanders (I-VT) leaked confidential data about oil speculation to a number of media outlets, including the Wall Street Journal. Ordinarily, the Commodity Futures Trading Commission, the regulatory body that oversees futures trading, does not provide identities of speculators to the public. However, the data leaked by Sanders provides a rare snapshot into the trading volumes by major speculators right before the oil price spike in the summer of 2008.

As experts from Stanford University, Rice University, the University of Massachusetts, and authorities have concluded, rampant oil speculation was the prime driver of the record high prices for crude oil three years ago.

To view a copy of the data, click here for documents leaked by Sanders. To view an organized spreadsheet, click here.

Notably, the top speculators are noncommercial players, meaning they are companies that simply and buy and sell crude contracts with no interest in actually refining and selling the product. Each contract in the list represents 1,000 barrels of oil. The documents show the total volume of trades made on one specific day shortly before the record high price of $148 per barrel.

The data, though revealing, still does not give a complete picture of trading strategies. Speculators invest in multiple private exchanges, and trading tactics can shift from day to day. Moreover physical plays, such as buying up large quantities of actual oil and storing it on tankers or in large containers, are still largely hidden from public view.

Tyson Slocum, an oil speculation expert at Public Citizen, reviewed the documents and spoke with ThinkProgress. He said that this data is important because it shows who the “big players are” and underscores the need for transparency and regulation in these so-called dark markets:

SLOCUM: What this tells us is who the big players are, because volume equates market share in a way, if you are driving volume, and if your volume is at a significant enough amount you become a price setter or at least a price trender where you’re going to have the effect of unilaterally influencing prices and that’s very significant. And you’ve got sort of a cascading effect, and the smaller traders are going to follow Goldman Sach and others will chase the leader, which is why Dodd Frank said Congress shall set position limits in these markets. Position limits would limit the market share, limit the positions banks could take. Dodd Frank recognizes the danger that one or two traders can have when they dominate the positions in a given market.

Professor Michael Greenberger, a former CFTC official, told ThinkProgress that the “short” positions outlined by the document might cause confusion because in many cases banks act simply as intermediaries for their clients. Critics will note the net short positions and assume incorrectly that many of these players were simply betting on prices to go down, not up. Greenberger explained that if you look closer at the data, the trading shows banks and other speculators were actually pushing the price up:

GREENBERGER: When you look at it carefully, the speculative money has all been heavily weighted in the favor of buying in the direction of the price going up. […] They go in and buy long in the regular futures market, which sends a long signal to the market, that there’s a supply problem that really doesn’t exist. To keep their long bets in place, they have to do something called the “Goldman Roll,” which is these contracts don’t go on forever. They expire. So what they have to do is sell short to get out of the contract when the expiration takes place, then roll around and buy long again to keep the long bet on the books. So the long bets are predicated on intermediate short bets, that are canceled out within three or four days of each other.

Regardless of the actual trading strategies, the volume makes clear that not only were Goldman Sachs and Morgan Stanley, as well as pension and sovereign wealth funds, among the top participants in the oil speculation bubble, but so were politically connected hedge funds. Elliott Management, one of the top hedge funds revealed by the documents, is led by Paul Singer, a billionaire investor and a major donor to Karl Rove’s network of attack groups and to Republicans on the Financial Services Committee.

As we have discussed on this blog, “all the major oil companies (Shell, BP, Occidental, etc) operate like Wall Street investment banks and use their privileged position in the oil market to make speculative bets on the price of oil.” An accidental leak of private Chevron data two months ago confirmed that the company relied on sophisticated speculation strategies, just as much as drilling and refining oil, to make a profit. This data seems to confirms that Koch Industries — a conglomerate that has admitted that it is among the top five oil speculators in the world — participates in the oil speculation market on the level of big banks.

The Dodd-Frank law passed last year contains a mandate that the CFTC crack down on rampant oil speculation by imposing position limits to curb the number of contracts held by participants in this market. As lobbying firms have spent months fighting these new rules, it is instructive to note that the biggest players 2008 oil price spike have also flooded campaign coffers of DC politicians, potentially hoping for influence in shaping these rules or weakening the CFTC’s hand (through budget cuts and other limitations). MapLight has compiled the campaign donations for some of the largest speculators revealed by Sanders’ leak, which can be viewed on this spreadsheet.

For more on Koch Industries’ role in deregulating the oil speculation market, carving out the infamous loopholes, and actually inventing the first oil derivatives, view our report here.

Source

This is obviously an interesting piece.  The price of gas has risen sharply over recent years,  and it is something that has caused increases in almost every other facet of life like food prices and other sundry items, motor oil, plastics, etc, etc, etc.  It seems the only place that we are not seeing price increases is in computing and televisions  Convenient, isn’t it, that the only sector that is relatively unscathed (technology, which uses plastics to a near exclusive degree) is the same sector responsible for delivering the government propaganda to our living rooms and offices?

But that digression aside, today I run across this article

Robert Halfon said banks including JP Morgan bid more than £95million for the oil — which had been released by Western governments specifically to bring down prices at the pump.

The Harlow MP claimed banks hoarded the oil on tankers and waited for prices to rise.

Mr Halfon said: “If it’s true, this is outrageous. We urgently need cheaper petrol to get our economy moving again.”

A spokesman for JP Morgan declined to comment on what he called a “baseless argument”.

Source

Being the super sleuth and master connector of dots that I am, it would seem to me that the two articles are pulling information from the same source.  It would also seem to hint that there is some truth to what is happening, as the second report is more precise than the first (although, hiding oil in tankers was an assertion in the first article as well).

The thing is, during the time that was discussed, 2008, I have a sharp recollection of how gas prices went.  I recall that they shot up from around $2.50/gal to almost $5.00/gal.  I also recall that when the price started to come back down, it plummeted to almost $2.30/gal (note:  these prices were the cost in my own town, prices that I was very aware of due to my business needs at that time).  It was obvious that some heavy manipulation was going on.  My assumption was that people who were starting to lose money in the housing bubble were using oil futures to offset losses (like a hedge).

Is this true?  Who knows.  But I believe it to be, in essence, accurate.   And under normal circumstances, while reprehensible, would not be actionable.  But we are talking about fuel that was put into the system from the “Strategic Reserves” of  the United States (ostensibly to lower oil prices and stabilize a teetering economy).

Which begs the question:  who in our government benefited from this?  Are there direct investments, or is the return back scratching coming in the form of campaign donations?  Or is it more like our government is the slave bitch of the domanatrix of the multinational corporate bank?   It is becoming apparent that there is something that scares the hell out of Uncle Sam when it comes to upsetting the financial institutions.  So much so that Bernanke refused to divulge where our TARP money went when asked point blank in a congressional hearing.  And it was accepted as an answer.

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