Global oil markets are sensitive to weekly reports of U.S. oil inventory levels. Prices often move up when large falls are reported and down when inventories build – particularly when the data surprises the market. Each Wednesday, the U.S. Energy Information Administration (EIA) publishes its report on oil inventories. Unexpected drops can spark price spikes on the main oil futures benchmark on the New York Mercantile Exchange.
Concerned that companies may be reporting false inventory levels to benefit their own trading positions, regulators are now investigating whether companies are injecting false data into the marketplace to influence perceptions about crude oil supply and demand. A company could under-report barrels in its inventory to suggest oil is scarcer than it really is and then sell its physical oil at a higher price when the prices increase.
It is illegal to provide false data to the EIA. While the EIA does not physically check the inventory to audit the accuracy of the reported data, it looks at other data on supply and demand to determine if the reported data is correct.
The U.S. Commodity Futures Trading Commission (CFTC) is now probing to learn if companies are reporting false inventory. It is now taking depositions about big market moves by companies that occurred unexpectedly, especially during the rapid shift in the structure of the oil markets in July 2007. During that time, oil for near term delivery had been selling at a discount to oil to be delivered months and years into the future. Suddenly oil for immediate delivery became much more expensive when the inventory of oil at a key hub declined rapidly.
The CFTC has been under increasing pressure to take action. Congress is debating whether to require it to take new steps to curb abuses. It has also been criticized for lax regulation.
The present probe is a part of a long term investigation as well as an attempt by the CFTC to improve its information and understanding of the workings of the energy market it regulates. As a part of its investigation, the agency sent out information requests to large oil traders, Wall Street firms, energy companies, and physical oil merchants. The agency is seeking the names of firms’ biggest traders and the email and instant messaging correspondence about the markets dating back to early 2007. In some cases, the correspondence requested dates back to 2005. The agency has also requested details of storage holdings and other physical assets the traders may own or control.
The probe as already started drawing criticism. The information requests are being characterized as overly broad. Critics also say that the CFTC is asking the companies and firms to disclose any unfair, improper, unethical, and unlawful practices.
The government, in an effort to control the ever increasing oil prices, has taken a few concrete steps, including efforts to rein in the speculators, and these efforts are beginning to show results. The price of oil today is less than what is was a couple of months back.
The probe is a step in the right direction. It is critical to ensure the integrity of the futures market in oil given the impact oil prices can have on all consumers.
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Contrary to what US Energy Secretary Samuel Bodman says I don’t think supply and demand are really causing the problem. There are to many other factors at play here. Too many middle men skimming profits. Too much manipulation of supplies and inventories. The price of oil nearly doubled and gas went up a third in just one year and yet figures are coming out that indicate we are using less gas, not more, probably because people are cutting back on gas. That clearly means supply and demand have nothing to do with these prices. Speculation is driving prices !!! Lawmakers blame loopholes in commodities trading like the Swaps loophole or Enron Loophole. Whatever you want to call it, It’s a get rich quick scheme and not much less obvious than a pyramid scheme. There is no way supply is causing this gas crisis. I put the full blame on speculators and commodities traders and I am sick of the smoke and mirrors.
Democratic Senator Ron Wyden from Oregon, said Quote “I think the CFTC is losing credibility by the day, The agency’s lack of oversight has hurt a lot of businesses.” End Quote.
In a seperate and rare dissident vote, Bart Chilton, one of the four CFTC commissioners, said the actions were insufficient. He said Quote “I do not believe the Commission’s recommendations go far enough,” End Quote.
I say, “How come no one is talking about compensation for the public? That’s right. We all got ripped off at the pumps and we want our money back. Vitol, Goldman Sachs, Morgan Stanley and the rest of the scoundrals have an obligation to make it right again and the CFTC should be disbanded and punishment administered to the ones that covered up this massive mistake”. Remember the Vitol “Oil for food” scandal in 2007 and then there was the Vitol “Contaminated oil scandal” in 1993 which involve the selling of 280,000 barrels of dirty oil to Pakistan? I guess we can call this one the “Vitol Swaps Scandal” Why is a company like Vitol even allowed to speculate in the first place?