Friday, May 30, 2008

The CTFC & Oil Prices: A Barrel Full O' Monkeys, Pt. 1

Reuter's reports "U.S. oil probes focusing on price manipulation":

A U.S. regulatory probe into potential oil-market trading abuses is focusing on possible short-term manipulation of benchmark crude prices and the use of information related to important oil storage tanks to influence prices, the Wall Street Journal reported on Friday.

The report comes a day after the Commodity Futures Trading Commission, under pressure from U.S. lawmakers to crack down on speculators they blame for pushing energy prices to record highs, said it would step up market surveillance.
There's no doubt in my mind that speculators play a large role increased gas prices here in the US. I think the average American can grasp this concept. But I also think the average American wants to know why when the price of that sweet, sweet light crude goes up in the morning, the price of all oil already refined, already in the massive underground tanks at their local gas station, also goes up.

All production and transportation costs for that gas have already been paid
. There is no increase in cost of that gas to the oil companies. But there is an increase in it's value. Thus the price you pay to fill up your tank goes up often twice each day.

How can the oil cos. get away with this? Easily. Until we rid our current government of the oil men riddled throughout and our duly elected representatives grow some cajones, we're powerless to oppose them. Our Congressional oil hearings have been a joke.

It's crystal clear Exxon-Mobil and friends are beholden to no one other than their stockholders. Their stockholders are ecstatic. Their stockholders can afford to fill up their tanks too. They probably all drive Hummers, Escalades and RVs. And why not? But I digress...

Fortunately for us, the Commodity Futures Trading Commission AKA the CTFC is on the case:
The CFTC announced a nationwide investigation into energy trading last December, but is in fact pursuing several oil investigations, many of which relate to one another, the Wall Street Journal reported, citing people familiar with enforcement priorities of the agency.
Wow! "Several oil investigations"! That's good, right? Not so fast. According to the CFTC's own 2006 Performance Accountability Report:
In FY 2006, Commission staff conducted daily surveillance of 1,135 active futures and option contracts. In particular, close monitoring was conducted on the energy futures markets...
Still, even with all of that CTFC vigilance, the price of oil has increased 40-fucking-percent in the first five months of this year! So what else can the CFTC do? More Reuters:
It has expanded its probe into alleged short-term manipulation of crude-oil prices via a widely used price-reporting system run by Platts, a unit of McGraw-Hill Cos, the newspaper reported.
They're just now expanding their probe to include Platts? Fer chrissakes, Platts has only been around for 90 fucking years!?! What's this unbelievably long overdue probe about?:
The probes appear to focus on gambits well known by traders in the opaque physical oil market, where trading a small volume of cash crude or gasoline during a short period when benchmark prices are set can yield big profits on derivatives positions.

Oil traders say that these kind of leveraged trading plays -- which are generally not illegal -- were more common prior to the Enron melt-down and the California power trading scandal that triggered increased scrutiny of world energy markets earlier this decade, but rarely had a lasting effect on prices.
Ah, Enron. It's funny how that name pops up. Two CTFC Commissioners(!) played a major role in the development, drafting and passage of the CFMA (H.R. 5660)." That's the legislation that created the "Enron loophole." It's this very legislation that created the oil futures mess in the first place!

That and more in Part Deux when we meet the Republican monkeys on the CTFC.