Joanna Chung in New York
Published: July 24 2008 16:37 | Last updated: July 25 2008 00:58
The controversy over whether speculators are behind soaring oil prices deepened on Thursday as US regulators filed charges against a Netherlands-based trading fund for manipulating energy futures prices. The Commodity Futures Trading Commission alleged that Optiver Holding, two of its subsidiaries and three high-ranking employees had manipulated prices of crude oil, heating oil and gasoline futures contracts on the New York Mercantile Exchange at least five times in March 2007.
Laying out its case with a series of e-mails and telephone recordings, the CFTC claimed two of the defendants discussed the “fairy story” they would give regulators in case Optiver was investigated for manipulation. One trader allegedly said he intended to trade in a volume sufficient to manipulate prices in Optiver’s favour, but not so dramatically that “we’re talking about it on CNBC or things like this”.
In other e-mails disclosed in the regulator’s civil complaint, traders said they would “hammer”, “whack” or “bully” the energy market. “You should milk it for right now, as much as you can, because you never know how long this thing is going to last,” one e-mail said.
The CFTC charges come amid growing pressure on the agency from politicians who blame high oil prices on excessive speculation. Although the regulator’s case involves the illegal practice of manipulation, not speculation, lawmakers are nevertheless likely to use it as an example of the impact financial players could have on the oil market.
Mitch McConnell, the Republican minority leader in the Senate, said the CFTC action was a “perfect illustration” of the need for new legislation to increase oversight of commodities trading.
Stephen Obie, CFTC’s acting director of enforcement, on Thursday denied the case was politically motivated and said the CFTC was “working tirelessly” to pursue every investigative lead involving potential wrongdoing.
Walter Lukken, acting CFTC chairman, said: “Although this alleged energy trading scheme lasted only several days in March 2007, even short-term distortions of prices will not be tolerated by the commission.”
There are dozens of probes into the crude oil market as part of a nationwide investigation.
The CFTC claims Optiver made 19 separate attempts over 11 days to manipulate prices, and caused artificial prices five times. According to the agency, the defendants forced futures prices lower in three cases and higher twice, though only by small amounts in each instance. Ultimately, the scheme allegedly allowed the defendants to profit regardless of the direction of the market and resulted in more than $1m in profits.
The defendants, according to the complaint, used a scheme known as “banging” or “marking”’ the close. It refers to the practice of acquiring big positions right before the close to manipulate prices.
The defendants’ goal in trading the futures was to improperly influence and affect the price of futures contracts, the CFTC said.
The CFTC worked with the Financial Services Authority and Nymex in its investigation.
Optiver did not respond immediately to calls seeking comment.
Additional reporting by Javier Blas in London
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