The high oil prices have forced the government to act once again. Earlier it was the Stop Excessive Energy Speculation Act – an attempt to rein in speculations in the oil market.
In July 2008, when the price of oil touched $150 a barrel, the Federal Trade Commission came under increasing pressure from lawmakers to act tough. The lawmakers felt that the main reasons for the high oil prices were excessive speculation and possible manipulation. The Excessive Energy Speculation Act tries to rein in speculation. To combat possible manipulation in the oil market, the FTC has proposed the anti-manipulation rule. This is an attempt by the FTC to fulfill its Congressionally-mandated responsibility to prevent manipulation in wholesale oil and petroleum distillate markets.
Perhaps the biggest and most well hidden goal of the oil manipulators is in their long term strategy. By creating a public perception that there is a shortage of oil, the blame will fall on OPEC. With an angry public attacking some of their politicians to make it better, legal restrictions prohibiting drilling in ecologically sensitive areas might be rescinded. Drilling in the Gulf of Mexico, along the California coast, in Prudhoe Bay Alaska, along the Alaskan coastline – everywhere where they were heretofore prohibited from drilling would be opened by public demand. This long term windfall would make the present flow of cash look like peanuts. And the damage done to fragile environments would be incalculable.
The rule defines manipulation as knowingly using or employing, directly or indirectly, a manipulative or deceptive device or contrivance – in connection with the purchase or sale of crude oil, gasoline, or petroleum distillates at wholesale – for the purpose or with the effect of increasing market price thereof relative to costs.
The proposed rule covers both spot and futures market and prohibits petroleum market manipulation. Under the rule, the FTC can levy fines up to $1 million per violation a day. The FTC hopes to conclude the rule making process by this year end.
The rules would bar any fraud or deceit in the purchase or sale of crude, gasoline, or other petroleum product. Fraudulent or deceptive acts, including false reporting to private reporting services or misleading announcements by refineries, pipelines, or investment banks, will be covered by the proposed rule.
The rules are modeled after the market manipulation prohibitions maintained by the Securities and Exchange Commission and targets fraudulent or deceptive conduct “that threatens the integrity of wholesale petroleum markets.” It would be unlawful for any refineries, pipelines, investment banks, or any other outfit to directly or indirectly commit fraud in the purchase or sale of crude oil, gasoline, or petroleum distillates at wholesale. There would be no new obligations or record-keeping requirements.
The proposed rules also cover the futures market – the domain of Commodity Futures Trading Commission (CFTC) and is likely to spur a regulatory turf battle between the FTC and the CFTC. The CFTC is authorized by the Commodity Exchange Act to bring an action against anyone who has unlawfully “manipulated or attempted to manipulate the market price of any commodity.”
Many experts feel that the new rules will serve no purpose. Why? An FTC report issued on May 22, 2006, found no situations that might allow one firm or a small collusive group to manipulate gasoline futures prices by using storage assets to restrict gasoline movements into New York Harbor, the key delivery point for gasoline futures contracts.
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There is always manipulation, not just in oil but across the board.