Less than a month after President Obama set up a task force to "root out" fraud in the oil market, the Commodity Futures Trading Commission has accused two individuals of manipulating the market — back in 2008.
The WSJ reports: "The CFTC accuses the traders, Nicholas J. Wildgoose and James T. Dyer, who worked for Arcadia Petroleum Ltd., a Swiss commodity-trading firm, and its affiliates, of buying millions of barrels of oil, creating the illusion that supplies were critically low at the nation's central oil hub, Cushing, Okla."
The CFTC alleges the two traders also pocketed $50 million in ill-gotten gains from the scheme, which is a pittance compared to the billions of dollar the 2008 price spike costs consumers, and the global economy. Indeed, many market players believe Wildgoose and Dyer are being made scapegoats for the crimes of the big players in the energy pits, which very much includes big banks like Goldman Sachs, JPMorgan and Morgan Stanley -- similar to the "mom and pop" mortgage brokers who took the fall for the subprime crisis while the Angelo Mozilos of the world escape (largely) unscathed.
Of course, it's entirely possible the 2008 price spike — and the 2010-11 version — were due largely to fundamentals, as Henry suggests in the accompanying clip. But the allegations — if true — suggest it doesn't take a of money (or creativity) to manipulate the market for the world's most important commodity.
Given the importance of crude, there has to be a better way to regulate these markets and it would seem that "simple" steps like position limits and forcing speculators to take physical delivery on even a small portion of their trade would do a lot to discourage fraud and manipulation.
We've covered the issue of "speculation vs. fundamentals?" frequently in recent years. For past coverage of this issue, see:
- President Obama
- task force