After oil prices surged past $100 a barrel in 2008, suspicions that traders had manipulated the market led to Congressional hearings and regulatory investigations. But they produced no solid cases in the record run-up in petrol prices. But on Tuesday, federal commodities regulators filed a civil lawsuit against two obscure traders in Australia and California and three American and international firms.
The suit says that in early 2008 they tried to hoard nearly two-thirds of the available supply of a crucial American market for crude oil, then abruptly dumped it and improperly pocketed $50 million.
The regulators from the Commodity Futures Trading Commission would not say whether the agency was conducting any other investigations into oil speculation. With oil prices climbing again this year, US President Barack Obama has asked attorney general Eric Holder to set up a working group to look into fraud in oil and gas markets and ?safeguard against unlawful consumer harm?.
In the case filed on Tuesday, the defendants ? James Dyer of Australia, Nicholas Wildgoose of Rancho Santa Fe, California, and three related companies, Parnon Energy of California, Arcadia Petroleum of Britain and Arcadia Energy, a Swiss company ? have told regulators they deny they manipulated the market. If the US proves the claims, the defendants may give up $50 million in profits that were believed to be made as a result of the manipulation and also pay a penalty of up to $150 million.
The commodities agency says the case involves a complex scheme that relied on the close relationship between physical oil prices and the prices of financial futures, which move in parallel. In a matter of a few weeks in January 2008, the defendants built up large positions in the oil futures market on exchanges in New York and London, according to the suit, filed in the Federal Court in the Southern District of New York.
At the same time, they bought millions of barrels of physical crude oil at Cushing, Oklahoma, one of the main delivery sites for West Texas Intermediate (WTI), the benchmark for American oil, the suit says. They bought the oil even though they had no commercial need for it, giving the market the impression of a shortage, the complaint says.
At one point they had such a dominant position that they owned about 4.6 million barrels of crude oil, estimating that this represented two-thirds of the seven million barrels of excess oil then available at Cushing, according to lawsuits.
This type of oil is also the main driver of prices of the futures contracts, and their actions caused futures prices to rise, the authorities say. ?They wanted to lull market participants into believing that supply would remain tight,? the agency said. ?They knew that as long as the market believed that supply was tight and getting even tighter, there would be upward pressure on the prices of WTI for February delivery relative to March delivery, which was their goal.?