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CFTC Charges Traders Controlled By World's Largest Tanker Company With Oil Price Manipulation After Making "Shitload" Of Money

Tyler Durden's picture




 

Today's case of alleged (and rather substantial) commodities manipulation comes courtesy of two veteran BP traders and Norwegian tanker giant Frontline. Earlier today the CFTC charged James Dyer and Nick Wildgoose -- former senior traders at oil major BP -- with a manipulative trading scheme. Reuters reports: "The complaint, among the agency's biggest charges of wrongdoing in energy markets, said the scheme yielded more than $50 million in unlawful profits." The two traders, currently working at Arcadia and Pernon Energy, are controlled by Cyprus-based Farahead Holdings, a company controlled by Norwegian shipping magnate John Fredriksen who runs the Frontline, the world's largest tanker company. And since tankers tend to benefit from high crude prices, the question is not why Frontline was doing it, but which other tanker companies have also dipped in the pot but yet not been caught. Also not unexpectedly, at the heart of the charge is the easily manipulated linkage between physical and derivative commodities, which the traders exploited profitably for quite a while.

From Reuters:

The Commodity Futures Trading Commission accused traders at Parnon Energy Inc and Arcadia Energy Suisse SA of carrying out a cross-market trading scheme between January and April of 2008 involving accumulation and sell-off of a substantial position in physical crude oil to manipulate futures prices.

The suit stems from trading activities related to interplay between physical oil storage held in Cushing, Oklahoma, the delivery point for the U.S. benchmark futures contract, and the derivatives market. At the time the trades occurred, oil prices were on their way to record levels.

The CFTC complaint alleged Dyer and Wildgoose knew their style of trading could lead to riches.

Dyer said in a September 2007 email to other Parnon/Arcadia traders that there was a "shitload of money to be made shorting" the New York Mercantile Exchange West Texas Intermediate calendar spreads if the rest of the market believed supplies at Cushing were tight, but someone unexpectedly turned end-of-month balance into a "surplus," the complaint charged.

The charges do not seem to be linked to crude's record-breaking spike to almost $150 a barrel in 2008, although the alleged offense occurred during the same time period.

The CFTC alleges the pair did at times try to push prices higher by buying up commercial supplies of crude around Cushing. But they also tried to force prices lower, at times dumping crude to depress prices and profit on short positions, according to the CFTC.

Their attempt to control the direction of the market worked in January and March 2008, the CFTC said, but failed in April, as prices rose by almost $20 a barrel toward $120 over the course of that month. Prices barely paused from then until they hit more than $147 a barrel in July 2008.

The traders executed a manipulative strategy by amassing "a sufficient quantity of physical WTI to be delivered the next month at Cushing to dominate and control WTI supply even though they had no commercial need for crude oil," it said.

As for just who these "veteran" traders are and where they work:

 Parnon, headquartered in Oklahoma, owns at least 3 million barrels of storage facilities at NYMEX crude delivery point Cushing. London-based Arcadia is a major global oil trading firm, which typically markets about 800,000 barrels a day of crude and product around the world.

Both are controlled by Fredriksen's Farahead Holdings, based in Cyprus. Fredriksen also controls one of the world's leading oil tanker companies, Norway's Frontline.

Arcadia has been implicated in oil squeeze plays in the past. In 2000, US independent refiner Tosco filed a lawsuit alleging Arcadia and others had colluded to control a large trunk of the physical Brent crude market to drive up prices. Arcadia settled that suit for an undisclosed sum.

Congratulations CFTC: Obama's recently appointed Oil Price Anti-Manipulation Czar can now demand a raise. Now if only you would exhibit the same fervor in pursuing decade old charges of comparable but inverse price manipulation allegations in the precious metals space everyone would be very happy.

Full court filing:

Arcadian CFTC

 

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Tue, 05/24/2011 - 17:00 | 1306698 mayhem_korner
mayhem_korner's picture

Ya hafta admire the artistry of corruption...

Tue, 05/24/2011 - 17:20 | 1306754 Rainman
Rainman's picture

...yup. Cap a couple small fry to take heat off the Bigs. That Barry meant what he said about rounding up the evil specs....cough/cough

Tue, 05/24/2011 - 20:27 | 1307325 Downtoolong
Downtoolong's picture

Yep, and these dupes even got it backwards. The real money comes from manipulating the futures price index to affect the purchase and delivery price of physical oil you are managing (cough again) for your clients. That’s how the real shyster traders do it on Wall Street, aka, J. Aaron (Goldman), Morgan Stanley, Phibro (ex Citi), and JPM.

Tue, 05/24/2011 - 23:11 | 1307767 silberblick
silberblick's picture

Click below to see a visual graph of Bankster's dirty needs arranged according to Abraham Maslow's hierarchy of needs:

http://thesilvergoldhedge.blogspot.com/2011/05/banksters-dirty-hierarchy...

Tue, 05/24/2011 - 17:08 | 1306713 cossack55
cossack55's picture

Were any of the crew carrying Norfed dollars?

Tue, 05/24/2011 - 17:11 | 1306732 AndrewJackson
AndrewJackson's picture

This makes me feel better about not getting offered a job to begin BP's trading program.

Tue, 05/24/2011 - 17:19 | 1306745 fuu
fuu's picture

$50,000,000? Seriously?

 

When do we get the criminal investigation into the $700,000,000,000 Theft And Rape Project?

Tue, 05/24/2011 - 19:46 | 1307200 Rodent Freikorps
Rodent Freikorps's picture

Crime pays.

Tue, 05/24/2011 - 20:50 | 1307378 Amish Hacker
Amish Hacker's picture

IRilly. "The scheme yielded more than $50 million in unlawful profits." What a joke. In the QE bordello, you can find that much in the sofa cushions.

Tue, 05/24/2011 - 17:16 | 1306746 tmosley
tmosley's picture

You sure it wasn't Waddle and Reed?

Tue, 05/24/2011 - 17:18 | 1306749 Ecoman11
Ecoman11's picture

Repost:

 

The war is on physical stockpiling. Read how the UK Parliament openly admits there is a "Monopoly Supplier" in the metals market.


http://www.publications.parliament.uk/pa/cm201012/cmselect/cmsctech/726/...

 

So now hoarding and stockpiling is illegal but you are allowed to trade the soon-to-be 1000/1 paper market. Just don't touch the physical.

 


Tue, 05/24/2011 - 17:20 | 1306761 RobotTrader
RobotTrader's picture

FRO was destroyed today, down 6%, now at a 3-year low.

Nobody wants to invest in tanker companies when you can make 17% in a shoe company like DSW making new record highs.

And don't get me started on CMG, NFLX, LULU, etc.

Tue, 05/24/2011 - 17:28 | 1306782 Robslob
Robslob's picture

Poor Robo the sensationalist...

"FRO was destroyed today, down 6%, now at a 3-year low."

Interpretation: FRO fell 6.37%  / $1.28 and is getting "destroyed" After Hours for another 1% or .20 cents....

Tue, 05/24/2011 - 17:41 | 1306824 CPL
CPL's picture

They could always get whacked like DRYS.  However the fundementals of the company remain the same as always.  They have floating storage that can go to any point on the globe.

 

If you want to see funny.  Go look up Krispy Kreme...now that's funny.  Donuts and coffee are worth 8 bucks.

Tue, 05/24/2011 - 18:15 | 1306929 Cruel Aid
Cruel Aid's picture

Robot

You are an IBD guy, maybe Marketsmith(Q: Worth the money?).

Did CNTF pop up on your radar. Better than Gold and not worthy of Briefing.com earnings list.

 

Tue, 05/24/2011 - 17:22 | 1306765 PaperBear
PaperBear's picture

"they had no commercial need for crude oil" - can the same argument be made regarding silver ?

Tue, 05/24/2011 - 21:15 | 1307457 MrFriskles
MrFriskles's picture

I know I do a lot of hobby soldering with .999 fine. Pipes, circuit boards, etc .... right?

Tue, 05/24/2011 - 17:25 | 1306766 Raymond Reason
Raymond Reason's picture

Just like all law enforcement.  Out writing speeding tickets while the town is gang banged. 

Tue, 05/24/2011 - 17:26 | 1306776 cougar_w
cougar_w's picture

I once posted on ZH that oil companies manipulate prices for crude and distillates, and someone who posts here regularly said I was an idiot and it's all market forces.

Hey, are you still on ZH? Then if you are reading this: Fuck the fuck off you witless oil company fluffer troll.

Okay, to be fair this is more than just the oil primaries flogging prices. But still fuck off you lying, prostituting douche.

There. I feel much better.

Tue, 05/24/2011 - 17:37 | 1306805 tmosley
tmosley's picture

To be fair to the "douche", this looks a lot more like scapegoating to me.  The administration is trying to beat down the price by driving out all the long side specs.

Wed, 05/25/2011 - 02:31 | 1308073 Tremain
Tremain's picture

I’m with tmosley don’t forget a lot of the money was made by shorting WTI:

Dyer said in a September 2007 email to other Parnon/Arcadia traders that there was a "shitload of money to be made shorting" the New York Mercantile Exchange West Texas Intermediate calendar spreads

Tue, 05/24/2011 - 18:31 | 1306976 breezer1
breezer1's picture

you need to spend a little time over at banzai7's site.

Tue, 05/24/2011 - 17:27 | 1306779 silvertrain
silvertrain's picture

thank goodness..For a minute there I thought gas prices were going to stay high all summer..This brings the family vacation back in the picture now..Just in time for Memorial day weekend...

Tue, 05/24/2011 - 17:30 | 1306780 Catullus
Catullus's picture

I missed the part about this being illegal other than the CFTC just making up the market manipulation rules as they go.

Tue, 05/24/2011 - 17:39 | 1306818 NotApplicable
NotApplicable's picture

That's what I got from the article as well.

Are traders not supposed to trade now? Or was it just arbitrage that was outlawed?

Tue, 05/24/2011 - 17:47 | 1306847 Hansel
Hansel's picture

Agreed.  Don't all traders "manipulate" the price?  This is garbage, especially this,

Their attempt to control the direction of the market worked in January and March 2008, the CFTC said, but failed in April...

So the CFTC is going to pick and choose which trades were manipulation?  What a waste of resources this suit is.

Tue, 05/24/2011 - 17:32 | 1306785 belogical
belogical's picture

I love the part about amassing a huge WTI position without physical need for it. If that is the case then what in the world do they say about silver. Why on earth would a handful of banks amass a huge short position. There can not be a logical reason for it other then manipulation of price, which is what we just experienced 

Tue, 05/24/2011 - 17:30 | 1306792 CPL
CPL's picture

It took them five years to catch up with old news?

Tue, 05/24/2011 - 17:55 | 1306864 SILVERGEDDON
SILVERGEDDON's picture

JP Morgan Chase's 2785 short contracts (at last look, dominating the top 15 institutional holders of short position contracts by a factor 10 to 1!) is a coincidence. Anyone thinking they want to manipulate the market should have their pee pee whacked with a big stick! As for the rest of you - go buy the physical while it is under $40.00 per ounce - not gonna be there for long, and it will be a nostalgic look back in time some day for the old "Well, I remember when" speech you wind out for your grandchildren.

Tue, 05/24/2011 - 18:02 | 1306885 Tracerfan
Tracerfan's picture

The crude oil market is too large for these traders to move prices materially.

I call BS.

This is a naked attempt to flush participants out of the market.

Less volume means more price volatility, including spikes.

Idiots

Tue, 05/24/2011 - 18:05 | 1306890 Tracerfan
Tracerfan's picture

Blatant attempt to manipulate prices by the Feds.

Doomed to failure.

Tue, 05/24/2011 - 18:02 | 1306898 Dolemite
Dolemite's picture

Oil poised to take a leg lower?

Stocks certainly are

http://deadcatbouncing.blogspot.com/

Tue, 05/24/2011 - 18:13 | 1306934 JW n FL
JW n FL's picture

***** "Now if only you would exhibit the same fervor in pursuing decade old charges of comparable but inverse price manipulation allegations in the precious metals space everyone would be very happy." *****

 

Everyone knows the Oil is turned into Gold or Guns! the price of both to be controled by the U.S. Tax Payers Contributions.

Tue, 05/24/2011 - 18:18 | 1306940 ILikeBoats
ILikeBoats's picture

Baron Jamie Dimon and Lord Blankfein politely smile at the thought of being caught with $50 million in pocket change stolen from the nation's vending machines.  Why even bother with such a paltry amount?

Tue, 05/24/2011 - 18:18 | 1306941 honestann
honestann's picture

Hey you frauds at CFTC.  Why not get to the bottom of what's happening with silver.  What?  You have orders from the predators-that-be to suppress "monetary metals"?  Oh, thought so.

Tue, 05/24/2011 - 19:02 | 1307074 apberusdisvet
apberusdisvet's picture

The CFTC will go after these guys since the gas price is important to Obama's re-election.  10% (listed, but phony) unemployment plus $5 gas would be a real bummer.  Obama is as much of a bankster tool as Gensler. et al.

Tue, 05/24/2011 - 20:18 | 1307122 strannick
strannick's picture

Recently the CFTC went to Congress asking for more $$ so as to better regulate commodities, even though the chronically useless and absurd CFTC has only 1 prosecution of maniuplation in its 35 year existence.

The CFTC's record of doing absolutely nothing is understandable when one considers the revelation from retiring CFTC Judge Painter, who confessed that when he began his career, the CFTC Commisioner at the time told him to never rule in favour of a plaintiff.

Here is a tidbit from CFTC Commisioner Micheal Dunn, in which Dunn admits to the utter ineffectiveness of the CFTC as anything but a bumbling, fillibustering bureaucracy.

“To date, CFTC staff has been unable to find any reliable economic analysis to support either the contention that excessive speculation is affecting the markets we regulate or that position limits will prevent excessive speculation,” 

Tue, 05/24/2011 - 20:36 | 1307342 Smiddywesson
Smiddywesson's picture

Well look at the big brain on Strannick.  I didn't know any of that stuff.  You have justified my time spent tonight and have been logged in the notebook of people to listen to.

 

ty

Tue, 05/24/2011 - 19:39 | 1307183 Central Bankster
Central Bankster's picture

So trading oil is now "manipulation"?  How is going long oil, then selling it and going short, manipulation?  Its getting to the point where you have to be insane to even bother trading anything in the US, for fear that they come after you.  That is, unless you work for the government, then manipulation is A OK.

Tue, 05/24/2011 - 19:59 | 1307231 penisouraus erecti
penisouraus erecti's picture

Nick Wildgoose - too bad not Richard (Dick) Wildgoose - think of the comedic possibilities with that one.....

 

Tue, 05/24/2011 - 20:08 | 1307269 Hotspur
Hotspur's picture

Total waste of time. They're clearly off on a Wildgoose chase.

Tue, 05/24/2011 - 20:15 | 1307283 Smiddywesson
Smiddywesson's picture

"We manipulate bitchezz, you cough up the dough."

                         - Ben Chairsatan

Tue, 05/24/2011 - 20:23 | 1307304 Downtoolong
Downtoolong's picture

amassing "a sufficient quantity of physical WTI to be delivered the next month at Cushing to dominate and control WTI supply even though they had no commercial need for crude oil," it said.

What the hell, J. Aaron (Goldman), Morgan Stanley, Phibro (ex Citi), and JPM have taken massive positions in whole tanker loads of physical crude oil for years. Someone tell me what use these traders have for crude oil. Last I checked, there wasn’t a single refinery on Wall Street.

Tue, 05/24/2011 - 20:28 | 1307329 chistletoe
chistletoe's picture

 

Once you wipe off the lipstick, this action, along with the action the other day

on margin limits, is nothing more than an elaborate scheme to fix prices.

Ultimately, "the powers that be" have only two choices:

1 is higher prices.  2 is spot shortages.

Gas lines, here we come.

(kudos to Tracerfan.  The USA alone consumes 19 million barrels/day;

that's $1.9 billion/day ... not too many single "traders" have deep enough pockets

to move the spot price even one penny ....)

Tue, 05/24/2011 - 20:34 | 1307338 nmewn
nmewn's picture

LOL!!!...women & children hurt the most, again (VLCCF)

Tue, 05/24/2011 - 21:21 | 1307466 MrBoompi
MrBoompi's picture

That ain't no shit. This is like catching a kid stealin a pack of twinkies.

Tue, 05/24/2011 - 21:36 | 1307522 palmereldritch
palmereldritch's picture

And the traders' lawyers weigh in

http://www.youtube.com/watch?v=oIVVid-bgUk&feature=fvst

 

Tue, 05/24/2011 - 21:39 | 1307531 palmereldritch
palmereldritch's picture

dp

 

Tue, 05/24/2011 - 23:00 | 1307750 Coldfire
Tue, 05/24/2011 - 23:54 | 1307850 AldoHux_IV
AldoHux_IV's picture

Blatant market manipulation everywhere, profiting off it too, inflicting a lot of suffering to the real economy in the meantime-- the realization of the fraud from the peasantry: priceless.

By the way, it seems like if the CFTC actually wanted to create a fair and free market it wouldn't be that hard: revamping of the commercial hedging (as this has been a blanket for outright manipulation and now has become some business' main source of income), position limits, and a reclassification of the players in the commodity markets.

Wed, 05/25/2011 - 03:54 | 1308156 Expat
Expat's picture

Most of the serious (shitloads) of money in physical trading come from strategies like these.  Good luck policing the entire market and determining what is manipulation and what is just trading. 

 

In any case, I don't believe the law prevents the kind of trading that was done.  Might as well tell Apple they can't sell iPads for any more than cost.  Same principle.

Wed, 05/25/2011 - 05:59 | 1308220 tradewithdave
tradewithdave's picture

This has all the appearances of hustlers engaging in arbitrage and assuming massive risks in return for reasonable rewards.  I can see how they would want these guys shut down.  They don't have a lobbyist.

While the CFTC is on their "integrity" hunt, here's a few other places they may want to send everyone's friend Bart "extend and pretend" Chilton. 

Dave Harrison

www.tradewithdave.com

http://tradewithdave.com/?p=6559

http://tradewithdave.com/?p=6336

http://tradewithdave.com/?p=6291

http://tradewithdave.com/?p=6031

http://tradewithdave.com/?p=5863

http://tradewithdave.com/?p=4791

http://tradewithdave.com/?p=4618

http://tradewithdave.com/?p=5384

If you need more places to look for "integrity", you'll need to redeem some points to pay for more free advice.  TradeWithDave.com is no longer measuring acceptance in dollars.  We took our cue from the CFTC and now we measure everything in points... integrity points and according to our records Gary Gensler has a negative balance with Dave and a positive balance with Goldman Sachs.  We're going to need you to make a transfer. 

 

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