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Felix Shipkevich May 27, 2011

UPDATE 5/26 John Fredriksen, self-made shipping tycoon and owner of the oil trading firms in question, has joined the fray. He has accused the CFTC of targeting defendants Dyer and Wildgoose because of their association with BP Oil. Said Fredriksen: “Maybe the problem is that these guys (the traders) worked for BP and they made a lot of money for BP before…Maybe [American regulators] are trying to get some revenge.” On the subject of any possible wrongdoing, the “Big Wolf”, as he is sometimes called, expressed confident in his employees’ trade practices: “It is quite normal. It is the same for Glencore, and Vitol, and these other guys… It is nothing.”

Original:

Earlier this week, UK-based Arcadia Petroleum and its business partners Arcadia Energy (Switzerland) and Parnon Energy (US), along with two of its traders (James Dyer and Nicholas Wildgoose) were charged with unlawful price manipulation of crude oil futures. In a statement released today, Arcadia Petroleum called the charges “completely without merit”, instead contending that the  “CFTC is wrong on both the facts and the law.” The CFTC countered with some harsh words of their own. Said Commissioner Bart Chilton: “We’re watching and we’ll come and get you.”

According to their statement, Arcadia  brought in a team of outside experts to examine and review data from the period in question. The investigators concluded that the CFTC’s version of events did not match the firm’s trading activity or the market conditions at the time. Arcadia and its associates confidently maintain that “no manipulation was attempted or occurred, and that no laws were broken,” and that their “activity involved legitimate and lawful trades at market prices that were dictated by the fundamentals of supply and demand.”

While the CFTC has argued that Arcadia bought West Texas Intermediate light sweet crude (WTI) between January and April 2008 in order to drive up prices, Arcadia counters that it never held a “dominant” position in the market, its trading activity only represented a small fraction of the total volume at NYMEX at the time, and it was always within its position limits. “In the period January 2008 to April 2008, and for many months thereafter,” the statement explains, “crude oil markets in the US and across the world were experiencing unprecedented prices and volatility. Arcadia never had a significant trading position which could benefit or suffer from a rise or fall in the price of WTI crude oil throughout the period.”

The CFTC remains unfazed. These charges come as the result of an investigation commenced in 2008, when the crude market was convulsed by wild price fluctuations. Commissioner Chilton says he is looking to send a message to anyone considering market manipulation. Cases such as this are rare because current regulation requires the CFTC to prove intent to manipulate. In the future, under new Dodd-Frank rule the CFTC will only need to prove potential to disrupt the market. But those rules have yet to be finalized.

As a subject, manipulation of oil is especially fraught with political implications. Speculation and manipulation are often blamed when gas prices rise, so making an example of traders is appealing. However, while this may help CFTC win in the court of public opinion, it will be less useful in a court of law.

Read more about the initial CFTC charges.

Read more about recent development, including the Arcadia statement.

Creative Commons License photo credit: L.C.Nøttaasen

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