Big Oil Investigated for Price Fixing

[waltky]

European Commission Raids Oil Companies in Price-Fixing Probe...

Everything Is Rigged, Continued: European Commission Raids Oil Companies in Price-Fixing Probe
May 15,`13 - We're going to get into this more at a later date, but there was some interesting late-breaking news yesterday.

According to numerous reports, the European Commission regulators yesterday raided the offices of oil companies in London, the Netherlands and Norway as part of an investigation into possible price-rigging in the oil markets. The targeted companies include BP, Shell and the Norweigan company Statoil. The Guardian explains that officials believe that oil companies colluded to manipulate pricing data: The commission said the alleged price collusion, which may have been going on since 2002, could have had a "huge impact" on the price of petrol at the pumps "potentially harming final consumers". Lord Oakeshott, former Liberal Democrat Treasury spokesman, said the alleged rigging of oil prices was "as serious as rigging Libor" – which led to banks being fined hundreds of millions of pounds.

The inquiry also involves Platts, the world's largest oil price reporting agency. The concept here is very similar to both the LIBOR scandal, which involved banks manipulating the benchmark rates for interest rates, and to the possible rigging of interest rate swap prices through the manipulation of ISDAfix, the benchmark rate for those instruments, which is also the subject of a regulatory probe.

European finance workers

We wrote about both of those scandals in last month's Rolling Stone article, "Everything is Rigged." In that piece, finance professionals talked about the potential for manipulation in other markets that involve voluntary price reporting: What other markets out there carry the same potential for manipulation? The answer to that question is far from reassuring, because the potential is almost everywhere. From gold to gas to swaps to interest rates, prices all over the world are dependent upon little private cabals of cigar-chomping insiders we're forced to trust. "In all the over-the-counter markets, you don't really have pricing except by a bunch of guys getting together," Masters notes glumly. That includes the markets for gold (where prices are set by five banks in a Libor-ish teleconferencing process that, ironically, was created in part by N M Rothschild & Sons) and silver (whose price is set by just three banks), as well as benchmark rates in numerous other commodities – jet fuel, diesel, electric power, coal, you name it.

One analyst I spoke to for that piece talked specifically about Platts (and another, similar price assessment company), noting that they "do benchmarks for the entire oil market, the entire refined products market" and "you name it" – any of these benchmarks that rely on voluntary reporting could be manipulated.

Read more: Everything Is Rigged, Continued: EU Raids Oil Companies in Price-Fixing Probe | Matt Taibbi | Rolling Stone

 

[whitehall]

In europe

 

[JiggsCasey]

It's interesting that Taibbi doesn't seem to come out and declare what direction the price is being manipulated.

I have little doubt there's fraud going on with these giants. The implication is that pump prices are inflated.

But, ultimately, I wouldn't be too certain that oil is not suppressed from where it actually should be.

 

[OnePercenter]

In europe

For now.

 

[Mr. H.]

Jiggy makes a good point.
For traders, profits are made on the change in prices. Not the price itself.

 

[martybegan]

In europe

Considering its in Europe most of the cost comes from thier crazy taxes on gasoline.

 

[editec]

I join Taibbi in suspecting that there is no market that is truly on the up and up.

LIBOR, remember, that?


That is the tip of the iceberg.

 

[Mr. H.]

If "price fixing" exists, why is NYMEX consistently $15-$20 below Brent?
And why are local domestic crudes consistently priced $8-$20 below NYMEX?

 

[KissMy]

If "price fixing" exists, why is NYMEX consistently $15-$20 below Brent?
And why are local domestic crudes consistently priced $8-$20 below NYMEX?

In grain markets that is called local basis spreads. This spread exist due to local supply, demand, transportation restriction & cost. Producers almost never get paid NYMEX prices.

 

[Mr. H.]

Nahhhh.... it's PRICE FIXING!

 

[KissMy]

Nahhhh.... it's PRICE FIXING!

There was price & supply manipulation going on. But the local oil producer sale price differs due to other factors. WTI crude was landlocked along with Canada's oil sands & Bakken oil shale. Enbridge bought the seaway pipeline & reversed it's pumps to relieve some of the landlocked oil glut & price difference. The Keystone XL pipeline is supposed to fix this problem.

 

[Mr. H.]

Nahhhh.... it's PRICE FIXING!

There was price & supply manipulation going on. But the local oil producer sale price differs due to other factors. WTI crude was landlocked along with Canada's oil sands & Bakken oil shale. Enbridge bought the seaway pipeline & reversed it's pumps to relieve some of the landlocked oil glut & price difference. The Keystone XL pipeline is supposed to fix this problem.

There was? It appears to still be a "probe".

And I'm all too familiar with the reasons behind pricing variations among localized markets. I was just being.... me.

 

[whitehall]

Sure they price rig. The freaking government is in the business of price rigging. International oil executives are obviously smarter than the people we elect to monitor them and Americans are still hurting from high gas prices. Who do we see about that?

 

[Mr. H.]

Were "they" price rigging in 1999?

 

[KissMy]

Were "they" price rigging in 1999?

It's hard to say if it was in 1999, but the major price fixing resulted from the Commodities Futures Modernization Act of 2000 signed into law by Bill Clinton. It allows price fixing & market manipulation & contributed to the housing bubble. Assets change hands so many times on paper/electronic trading before it reaches the consumer that it is ridiculous. It is all to discover & extract the maximum price from the consumer regardless of production cost.

Bankers leases oil tankers to hold massive amounts of oil offshore & out of inventory. This not only created a oil fake shortage & ran prices up, but it tied up most of the oil tankers creating bottlenecks in oil transportation causing wild price spikes & shortages in importing countries. This depressed oil prices for producers causing them to reduce production & ran up oil prices on consumers. It made huge profits for bankers & traders.

 

[Mr. H.]

Were "they" price rigging in 1999?

It's hard to say if it was in 1999, but the major price fixing resulted from the Commodities Futures Modernization Act of 2000 signed into law by Bill Clinton. It allows price fixing & market manipulation & contributed to the housing bubble. Assets change hands so many times on paper/electronic trading before it reaches the consumer that it is ridiculous. It is all to discover & extract the maximum price from the consumer regardless of production cost.

Bankers leases oil tankers to hold massive amounts of oil offshore & out of inventory. This not only created a oil fake shortage & ran prices up, but it tied up most of the oil tankers creating bottlenecks in oil transportation causing wild price spikes & shortages in importing countries. This depressed oil prices for producers causing them to reduce production & ran up oil prices on consumers. It made huge profits for bankers & traders.

I would venture to guess that crude was held in floating inventory because of suppressed prices, not to manipulate markets. The notion of holding "massive amounts" of product (at huge costs mind you) in such storage in order to raise commodity prices is beyond silly.

 

[KissMy]

Were "they" price rigging in 1999?

It's hard to say if it was in 1999, but the major price fixing resulted from the Commodities Futures Modernization Act of 2000 signed into law by Bill Clinton. It allows price fixing & market manipulation & contributed to the housing bubble. Assets change hands so many times on paper/electronic trading before it reaches the consumer that it is ridiculous. It is all to discover & extract the maximum price from the consumer regardless of production cost.

Bankers leases oil tankers to hold massive amounts of oil offshore & out of inventory. This not only created a oil fake shortage & ran prices up, but it tied up most of the oil tankers creating bottlenecks in oil transportation causing wild price spikes & shortages in importing countries. This depressed oil prices for producers causing them to reduce production & ran up oil prices on consumers. It made huge profits for bankers & traders.

I would venture to guess that crude was held in floating inventory because of suppressed prices, not to manipulate markets. The notion of holding "massive amounts" of product (at huge costs mind you) in such storage in order to raise commodity prices is beyond silly.

It was happening after oil went above production cost. They kept adding to floating storage until the price peaked at $147. Panic selling started when Bush opened the OCS, the banks needed money & the economy tanked.

Enron proved this method works well. Disrupt energy transportation & supply. Get consumers begging to pay more & producers begging to sell for less. Max out profits through arbitrage trading. Once the producers & consumers are shocked a few times they are willing to take or pay what ever these traders want.

 

[Mr. H.]

Enron was an anomaly and they were caught.

There is always floating inventory. There are not enough tankers in the world to keep adding to what you already described as "massive amounts".

Sometimes I think you just talk out yer butt.

 

[KissMy]

Enron was an anomaly and they were caught.

There is always floating inventory. There are not enough tankers in the world to keep adding to what you already described as "massive amounts".

Sometimes I think you just talk out yer butt.

Exactly! - There were not enough tankers. When bankers leased 56 tankers holding 110 million barrels of oil to sit out in the ocean it caused tanker oil transportation shortage. This caused huge market imbalance & high profits arbitrage trade.

Enron did that same thing with power lines until they were caught & congress supposedly "closed that loophole". So traders moved this scam offshore, out of sight, out of regulatory jurisdiction, out of inventory & in secret.

 

[Mr. H.]

Enron was an anomaly and they were caught.

There is always floating inventory. There are not enough tankers in the world to keep adding to what you already described as "massive amounts".

Sometimes I think you just talk out yer butt.

Exactly! - There were not enough tankers. When bankers leased 56 tankers holding 110 million barrels of oil to sit out in the ocean it caused tanker oil transportation shortage. This caused huge market imbalance & high profits arbitrage trade.

Enron did that same thing with power lines until they were caught & congress supposedly "closed that loophole". So traders moved this scam offshore, out of sight, out of regulatory jurisdiction, out of inventory & in secret.

So, in a world that produces 80 million barrels per day of crude you're telling me that 110 million total barrels in floating storage was sufficient to affect market prices?

I understand what you're saying about tanker shortages, but as of 2007 there were over 4,000 such vessels plying the world's waters. And a group of bankers controlled a whopping 56 of them?