9-04-08 by dugan
For the last two years, the White House and its Commodity Futures Trading Commission have patted us all on the head and said "it’s only supply and demand" while the price of gasoline popped $4.00 a gallon and crude oil hit $145 a barrel. Well, oopsie–now there’s a new tune. The Wall Street Journal tells us today (subscription barrier) that the commission, which is under heavy Congressional pressure, is investigating reports of schemes by oil producers and buyers to manipulate the supply of oil and drive up the price.
It’s hard to have much trust in the understaffed, consumer-hostile regulators of the CFTC, who consistently testified that oil markets were operating just fine and treated those of us who suspected any manipulation as off-the-wall conspiracy theorists. But the Journal story, though it lacks names, has details about possible under-reporting of oil stocks in storage–which could immediately drive up the market price. The beneficiaries could be both oil companies and financial-only traders who might have been in on the scheme.
From the Journal:
Unexpected drops in oil inventories reported each
Wednesday by the U.S. Energy Information Administration can spark price
spikes on the main oil futures benchmark on the New York Mercantile
Exchange. A company could theoretically underreport barrels in its
tanks, for example, at a key hub to suggest oil is scarcer than it
really is, and then sell its physical oil at a premium when oil prices
jump on misleading news.Another concern is whether companies conduct some
physical oil sales and purchases solely to influence short-term pricing
on oil futures markets.It isn’t clear whether the regulators, at the
Commodity Futures Trading Commission, have certain energy firms in
their sights. But people familiar with the agency’s operations say its
concerns stem from tips from sources in the oil-trading world about big
market moves that occurred unexpectedly.
And here’s another tidbit, about how the Energy Information Administration, which gathers a huge flow of data about supplies, production and prices, appears lax about fact-checking, and has withheld information from the regulators because it didn’t want to share corporate "trade secrets."
It is illegal to report false data to the EIA. One issue is how much
the EIA vets the information it receives; the CFTC is interested in
doing more thorough examinations of inventory data that it suspects may
be inaccurate. Jonathan Cogan, spokesman for EIA, says while the EIA
doesn’t do physical inventory checks to audit the accuracy of the
reported numbers, the agency looks at other data on supply and demand
to determine if the inventory data appears on target. …The CFTC is seeking to obtain data from the EIA about
what various companies report and that the EIA uses to compile its
widely watched weekly energy inventory estimates. Traders the world
over watch the data as an important barometer of energy supply, since
the data the U.S. publish are far more robust than in many other
nations.The EIA says while it has shared data with the CTFC in
the past, it doesn’t provide an entire data feed for an open-ended time
frame. Mr. Cogan, spokesman for EIA, says, "The reason why this data is
protected at the individual level is … that in order to get truthful,
accurate, timely reporting of data — which is data that competitors
would find useful — we try to ensure that that data is not available
at the company level. That way companies will feel they can accurately
report to us. It will benefit the whole market with better information."
If regulators are denied (and don’t demand) regular, open access to the information they need to even detect misdoing, they should just change their title to "enablers."