Oil Trading's Powerful "Dark Markets"

As gas prices skyrocket, attention has turned to public "pits," where brokers trade "oil futures" - the right to buy or sell crude oil at a specific price, on a future date.

But far away from the hue and cry, hundreds of millions of barrels of oil futures contracts are traded electronically every day, CBS News chief investigative correspondent Armen Keteyian reports.

More than 30 percent, experts say, exchanged in so-called "dark markets," the exact size and scope unknown to U.S. regulators.

"If you can trade out of the sight of U.S. regulators, you can manipulate these markets," said Michael Greenberger, a former top staffer at the Commodities Futures Trading Commission, or CFTC, which regulates the trading of commodities like oil in this country.

He recently told Congress that speculation is placing a huge premium on the price of oil.

"How much per barrel?" Keteyian asked.

"Well, there have been various estimates - anywhere from 25 percent to 50 percent," Greenberger said.

"People can actually corner the market and drive up the price," said Sen. Maria Cantwell, D-Wash. "When there is no policeman on the beat, you know that crime can go up."

More and more fingers are pointing at one of the least-known but most powerful foreign exchanges - the InterContinental Exchange, or ICE.

By the end of 2007, the all-electronic exchange accounted for nearly a 50 percent market share of all global oil futures contracts, a total of 138.5 million contracts - up 49 percent from 2006.

Today it boasts more than 2,100 individual traders representing virtually all of the major players in oil - banks, hedge funds, energy companies, investment giants.

And according to a securities filing, two of those giants, Goldman Sachs and Morgan Stanley, were founding partners of ICE.

"The fact that they started this shows the intent of where they wanted to go," Greenberger said. "Which was to trade crude oil and energy products without any police in the United States supervising it."

That's because it's considered a foreign exchange. Taking advantage of a loophole created by the CFTC, the company says its "energy futures business" is conducted in London, it is not subject to U.S. laws. Over strong criticism, the CFTC agreed.

All this despite the fact ICE headquarters are in this building in Atlanta, it's primary data center in Chicago, and nearly all its trades settled in U.S. dollars.

"It is a charade, and ... it defies explanation," Greenberger said.

In a statement, ICE CEO Jeffrey Sprecher told CBS News that ICE is committed to providing "the same visibility in our oil markets that exists for U.S. Exchanges," and that ICE Futures Europe is "fully regulated" by the British government.

But British financial authorities are notoriously lax.

Now Congress and others are asking just how much of the crude oil futures market is being manipulated by either excessive buying designed to drive up the price, or phony transactions that imply a supply problem that does not exist.

Today, under pressure, ICE finally agreed to impose stricter limits on certain trading, shedding some much needed light on the dark side of oil.