Oil Trading's Powerful "Dark Markets"

CBS News Looks Inside Futures Trading Beyond Watch Of U.S. Regulators

(CBS)  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.

[limaur]

The price of oil is squeezing the world''s economies and you are trying to tell me that it''s unknown dark forces that are responsible. Puh.....lease !

[flagship-usa]

You have to love Amerika, such a great place to do business.

[hoseobama]

Guess why there is no policeman on the beat ?

It wouldn''t have anything to do with Congress and their lack of making the appropriate laws, would it ?

[one-american]

Maybe the Al Gore is the evil mastermind of these "dark forces", trying to make oil too expensive to use, so he can fight "global warming"...and make himself filthy rich at the same time.


And speaking of Al Gore, here is an article about the supposed "green" giant:

"Energy Guzzled by Al Gore%u2019s Home in Past Year Could Power 232 U.S. Homes for a Month"

http://tennesseepolicy.org/main/article.php?article_id=764

[donbl1]

This story is a little incomplete as the majority of the orders are actually placed by the end users and not by speculators.

A fair issue is whether the speculators which are a very small minority of the orders are sufficient to drive the price. Might be.

[perceptions5]

Now a new Rasmussen poll shows:........"A new Rasmussen Reports telephone survey%u2014conducted before McCain announced his intentions on the issue--finds that 67% of voters believe that drilling should be allowed off the coasts of California, Florida and other states. Only 18% disagree and 15% are undecided.

Conservative and moderate voters strongly support this approach, while liberals are more evenly divided (46% of liberals favor drilling, 37% oppose).".............

McCain should take this issue and run this it. Obama and his pals the Democrats who for DECADES have been taking "donations" from their special interest buddies the Enviro''s to stop and "Block" virtually all domestic development and production" of energy here in America. Whether it be Nuclear, Oil, Oil refineries, Coal............on and on.

Obama is on the wrong side of this issue. And it could mean curtains for OBAMA..........

But watch our mostly liberal wolfpack press either not report this information, like I am.

Or they will spin in a Pro-Obama way......sad

[l8c6]

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

And to all citizens of the United States who have been lied to, cheated, deceived, manipulated, used and burdened with fighting someone else''s war your turn is due to proclaim NEVER AGAIN !

[canyoutellme-2009]

this talk about WHY we "wacko libs" are preventing the OIL drilling off the coast of california and elsewhere in the nation is absolutely HOGWASH. Explain something to me... why is it that the oil companies have over 10,000 permits RIGHT NOW to drill in the US that they''re just sitting on... they have land leases and permits to drill on land that has BILLIONS and BILLIONS of proven oil reserves and yet they''re not drilling... when you can explain that one to me, then try and figure out why they''re not drilling off the coast of california ''n other such places... it has NOTHING to do with the wacko environmental libs.. it''s ENTIRELY just the OIL companies.

BTW, there is ZERO oil shortage right now... ZERO. When was the last time you went to the gas station and they said "oops, no more gas" or "oops, we''re rationing gas now".

[donbl1]

Can, at $135/barrel, if there were billions and billions of barrels on land not drilled, I suspect they would be drilling it........

Oil companies do not share lease information with anyone. No one knows what lies in those leases.

[hoseobama]

"another starving self righteous baby bird, mouth wide open, waiting for big govt to put something in it. - Posted by ainttaken


And as far as I''m concerned, the only thing good about BIG Government is the criminals are off the streets.

[canyoutellme-2009]

This story is a little incomplete as the majority of the orders are actually placed by the end users and not by speculators.

A fair issue is whether the speculators which are a very small minority of the orders are sufficient to drive the price. Might be.


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Posted by donbl1 at 07:46 PM : Jun 17, 2008
+ report abuse

You know very little about the markets...

The TRADERS are who set the prices of oil. The End users (you and me) buy based on what the FUTURES end up being. THAT''s how it works. How do you think the prices of gold and silver are dictated?? Same way... the commidities traders set the prices, YOU AND I buy and sell based on those prices. THAT is the way it works.

[hoseobama]

all 545 of them.

[canyoutellme-2009]

Can, at $135/barrel, if there were billions and billions of barrels on land not drilled, I suspect they would be drilling it........

Oil companies do not share lease information with anyone. No one knows what lies in those leases.


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Posted by donbl1 at 07:57 PM : Jun 17, 2008
+ report abuse

Permits are a matter of PUBLIC RECORD. You can go request copies if you like. It is FACT.

[donbl1]

Can, I can not give you 30 years of experience in a forum but I recommend you read up a little as you are way off base.

[donbl1]

Can, "permits" to drill do not tell you what lies under the ground......

[l8c6]

This is what happens when right wing anti-socials privatize the government. Unilateral input makes for a healthy balanced democratic well represented nation. Sociopaths who think they know it all are egotistical, narcissists who the better and larger part of humanity must rise against and set limits upon. Their punk response is drill more. What needs to happen to these fu*cks is that all need to sit down to a glass of crude and be forced to drink it at gun point and then later if still alive decide if they want to go on their right wing rant and promotion to drill more.

This is just more privatized, unmonitored, unregulated, separatist elitism oppressing the rest of the human race to satisfy a few egos and justify their useless earthly existence.

He*ll was made for these antisocial bas*tards.

[canyoutellme-2009]

Can, I can not give you 30 years of experience in a forum but I recommend you read up a little as you are way off base.


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Posted by donbl1 at 07:59 PM : Jun 17, 2008
+ report abuse

I am *not* off base.. in fact, i''m right ON base. If you''re telling me that the commidities traders are not the ones that set the price of commidities then you''ve got a screw loose. Your 30 years have gotten you nowhere.

Like McCain, your "experience" is the wrong kind of experience.

[canyoutellme-2009]

Can, "permits" to drill do not tell you what lies under the ground......


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Posted by donbl1 at 08:00 PM : Jun 17, 2008
+ report abuse

Fair enough... but why would they bother to get drilling permits if they haven''t done the surveying already to determine the reserves? In addition, much of those permits are on PUBLIC LAND, and on PUBLIC LAND, the reserves ARE public record. I''ll see if i can dig some up. There''s land leases they have in Montana and other areas in the north that *do* have proven reserves of billions of barrels of oil.

[donbl1]

Can, "traders" do not set the price....... bid and sell set the price.

If you had any money, you could bid and buy some.

[donbl1]

Can, out here in Texas we are drilling up a storm in "proven" fields or the new gas fields around Ft. Worth.

Actually, there is a world wide shortage of drilling rigs and a real shortage of ocean drilling rigs.

[canyoutellme-2009]

Can, "traders" do not set the price....... bid and sell set the price.

If you had any money, you could bid and buy some.


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Posted by donbl1 at 08:03 PM : Jun 17, 2008
+ report abuse

oy vey... who do you think sets the bid and ask price?? Right.. the TRADERS. My goodness, do you NOT understand the difference between traders and end users?? Here, i''ll spell it out for you...

If i go and trade oil futures, i''d be a *TRADER*
If I go and fill up my gas tank, i''d be the END USER. I pay what the gas man says i have to pay. I cannot bid the price up or negotiate down... doesn''t work that way... in the oil FUTURES market, i can buy and sell with some negotiation in there and THAT is what creates the market... and THAT is what sets our prices.

[donbl1]

Can, end users are the oil companies, airlines and trucking firms to name a few.

You are not an end user. You are a consumer.

[l8c6]

Permits are a matter of PUBLIC RECORD. You can go request copies if you like. It is FACT.

Posted by CANYOUTELLME

You make it sound so easy.

There should be clarity and our politicians should make available to the public so EVERYONE participates. We the people should not have to dig for the facts. This is information that should be easily accessed and understandable to all without limited access. So much information while "available to the public" in essence isn''t because the control b*astar*ds want it that way.

Instead our politicians are bent over with gaped arses waiting to get more cash stuffed up their insatiable cavities by those who privately hold and control the earth''s resources.

[canyoutellme-2009]

Can, out here in Texas we are drilling up a storm in "proven" fields or the new gas fields around Ft. Worth.

Actually, there is a world wide shortage of drilling rigs and a real shortage of ocean drilling rigs.


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Posted by donbl1 at 08:04 PM : Jun 17, 2008
+ report abuse

yes, i''ve heard about the latest fields found in texas.. under a whole bunch of cities! good stuff... however, how come you don''t see ANY of that reported in the news? It''s all hush-hush to most of the country. There is ZERO supply shortages right now.

however, yes... shortage of rigs ''n such... that is a fact that is true (congrats for being right once). So what''s all the commotion about saying the wacko libs are preventing the oil drilling? that''s bupkis.

[canyoutellme-2009]

Can, end users are the oil companies, airlines and trucking firms to name a few.

You are not an end user. You are a consumer.


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Posted by donbl1 at 08:06 PM : Jun 17, 2008
+ report abuse


End Users are consumers. Consumers are End Users.

If i''m a big business, my end user may be the business i''m selling my product to, or it may be directly to the consumer... which is the *END USER*

The actual definition of end user is...
"The ultimate consumer of a product, especially the one for whom the product has been designed."

[l8c6]

If i go and trade oil futures, i''''d be a *TRADER*
If I go and fill up my gas tank, i''''d be the END USER. I pay what the gas man says i have to pay. I cannot bid the price up or negotiate down... doesn''''t work that way... in the oil FUTURES market, i can buy and sell with some negotiation in there and THAT is what creates the market... and THAT is what sets our prices.


Posted by CANYOUTELLME

Well, it sounds like system that has become perverted to the point that it benefits a small number of human beings in the short run and in the long run no one.

The Enron tapes are proof we are dealing with anti-social personalty disorders amongst many of these traders.

[donbl1]

Can, currently, there is a Federal law restricting further off shore drilling and drilling on much of the government owned land that came about in the 90''s if I remember right.

The way to beat that is for the states to get a cut of the pie and not the federal government. The states would decide what fits them based on their financial rewards.

[canyoutellme-2009]

Well, it sounds like system that has become perverted to the point that it benefits a small number of human beings in the short run and in the long run no one.

The Enron tapes are proof we are dealing with anti-social personalty disorders amongst many of these traders.


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Posted by l8c6 at 08:11 PM : Jun 17, 2008

Exactly

[donbl1]

Can, the big buyers of options in the oil/gasoline/diesel market are the refineries, airlines and trucking companies. They are defined as the "end users".

That allows them (Southwest is a good example) to protect themselves when prices rise. Southwest is the only large airline making a profit right now and that is because they purchased options.

[canyoutellme-2009]

Can, currently, there is a Federal law restricting further off shore drilling and drilling on much of the government owned land that came about in the 90''''s if I remember right.

The way to beat that is for the states to get a cut of the pie and not the federal government. The states would decide what fits them based on their financial rewards.


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Posted by donbl1 at 08:11 PM : Jun 17, 2008
+ report abuse

And the republicans had control of both houses and the presidency for 6 years (and both houses for what.. 18 years?) and yet they couldn''t or wouldn''t change that law?? explain to me how that''s the libs fault in any way?!

In addition, they got the PERMITS from those states to drill... they have YET to drill. It''s because they do not WANT to drill since there''s no need to.

[l8c6]

So what''''s all the commotion about saying the wacko libs are preventing the oil drilling? that''''s bupkis.

Posted by CANYOUTELLME

thankyou. It is a bunch of friggin sh*it talk and I''m tired of that fat azzed Limbaugh, Ann Coultergeist and the rest of the right wing talk radio and t.v. swine with their divisive BS noninfo garbage.

[omega39-2009]

in January 2006, the George W Bush administration''s CFTC permitted the ICE, the leading operator of electronic energy exchanges, to use its trading terminals in the United States for the trading of US crude oil futures on the ICE futures exchange in London - called "ICE Futures".

Previously, the ICE Futures exchange in London had traded only in European energy commodities - Brent crude oil and United Kingdom natural gas. As a United Kingdom futures market, the ICE Futures exchange is regulated solely by the UK Financial Services Authority. In 1999, the London exchange obtained the CFTC''s permission to install computer terminals in the United States to permit traders in New York and other US cities to trade European energy commodities through the ICE exchange.

The CFTC opens the door
Then, in January 2006, ICE Futures in London began trading a futures contract for WTI crude oil, a type of crude oil that is produced and delivered in the United States. ICE Futures also notified the CFTC that it would be permitting traders in the United States to use ICE terminals in the United States to trade its new WTI contract on the ICE Futures London exchange. ICE Futures as well allowed traders in the United States to trade US gasoline and heating oil futures on the ICE Futures exchange in London.

[canyoutellme-2009]

Can, the big buyers of options in the oil/gasoline/diesel market are the refineries, airlines and trucking companies. They are defined as the "end users".

That allows them (Southwest is a good example) to protect themselves when prices rise. Southwest is the only large airline making a profit right now and that is because they purchased options.


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Posted by donbl1 at 08:13 PM : Jun 17, 2008
+ report abuse

This is true... Southwest is not the only one... Alaska Air has also done pretty well there although, not as well as southwest. And yes, THEY are the end users because THEY are using the product. They, (the refineries), in turn, create a product for us, the END USERS to use as well. The OIL companies that pull the oil out of the ground are not the end users. However, they also do not set the prices of the oil, only the commodities markets do that.

[donbl1]

Can, there are two federal restrictions:

Executive Order of 1990 (Bush 41)
Congressional Law of 1981 (Democratic Congress)


http://www.freerepublic.com/focus/f-news/2030066/posts

http://www.orato.com/current-events/2008/06/17/mccain-call-lift-drilling-ban

[canyoutellme-2009]

So what''''''''s all the commotion about saying the wacko libs are preventing the oil drilling? that''''''''s bupkis.

Posted by CANYOUTELLME

thankyou. It is a bunch of friggin sh*it talk and I''''m tired of that fat azzed Limbaugh, Ann Coultergeist and the rest of the right wing talk radio and t.v. swine with their divisive BS noninfo garbage.


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Posted by l8c6 at 08:16 PM : Jun 17, 2008
+ report abuse

maybe i should have a radio talk show too... i can''t believe how many followers Rush has with the garbage he spews... same goes for Hannity with his 24-hour-Wrightfest and other such ridiculous personalities. Rush just points fingers at dems all day long and Hannity does ALMOST the same. Man Coulter is just ridiculous (I''m Jewish btw, and she hasn''t "perfected" me yet).

Had real supply and demand taken effect here, prices would be about 2 bux a gallon for gas and oil would be about $50-60 per barrel.. there is ZERO supply shortage and no forseeable shortage even WITH China and India consuming more and more.

[donbl1]

Can, you are "hoping" there is no "shortage"......

[roach9703]

The speculators will go to the poor house on this price run-up. If Russia is manipulating the markets, the people will be angry as Russia takes a licking on a down market. The Hunt Brothers tried to corner the silver market and they nearly went bankrupt. The higher the price, the greater the fall. We don''t need governments to make things worse.

[sistatee-2009]

If you want to see what the United States will look like in a few years, take a trip to India. While the rich there have EVERYTHING, the poor have NOTHING. And the middle class? There isn''t one. The rich in India have so much money they care not what the price of gas is. The poor don''t care either, because they couldn''t buy a teaspoon full of it. It''s all headed our way, by design.

[canyoutellme-2009]

Can, you are "hoping" there is no "shortage"......




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Posted by donbl1 at 08:22 PM : Jun 17, 2008
+ report abuse

I''m not "hoping"... there is, in fact, NO shortage.

When gas stations start running out of gas and are not able to get more due to a lack of supply, THEN i''ll start getting concerned.... but right now, there is ZERO shortage... even OPEC told the world there''s no shortage. Why would they tell that to the world? It would only hurt THEM if prices go down... it''s because even THEY want an orderly market.

[l8c6]

"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."

Lately the right wing is trying to spin it and say Jimmy Carter deregulated but for the too young to remember I can tell you it was very clear who fought for deregulation. It was the right wing republican party of neo cons under the initial puppet rule of Ronald Reagan.

[donbl1]

Sista, America has had flat consumption of oil for some time.

The only significant demand growth in the world is from India and China.

Must be more than just the rich driving around......

Maybe, it is all those Tata''s.

[donbl1]

It is always interesting that when some bubble occurs in America (and they are frequent) the conspiracy theorists come out.

There is no conspiracy other than wide spread GREED. It is what has made America rich.

[omega39-2009]

The chief market strategist for one of the world''s leading oil industry banks, David Kelly, of JP Morgan Funds, recently admitted something telling to the Washington Post: "One of the things I think is very important to realize is that the growth in the world oil consumption is not that strong."

One of the stories used to support the oil futures speculators is the allegation that China''s demand for imported oil is exploding out of control, driving shortages in the supply-demand equilibrium. Yet the facts do not support the China demand thesis.

The US government''s Energy Information Administration (EIA) concluded in its most recent monthly Short Term Energy Outlook report that US oil demand is expected to decline by 190,000 barrels per day (b/d) this year. That is mainly owing to the deepening economic recession.

Chinese consumption, the EIA says, far from exploding, is expected to increase this year by only 400,000 barrels a day. That is hardly the "surging oil demand" blamed on China in the media. Last year, China imported 3.2 million barrels per day, and its estimated usage was around 7 million b/d total. The US, by contrast, consumes around 20.7 million b/d.

That means the key oil-consuming nation, the US, is experiencing a significant drop in demand. China, which consumes only a third of the oil the US does, will see a minor rise in import demand compared with the total daily world oil output of some 84 million barrels, less than half of one percent of total demand.

[l8c6]

The poor don''''t care either, because they couldn''''t buy a teaspoon full of it. It''''s all headed our way, by design.

Posted by SistaTee

Yes and who really hates the United States and what principles it was founded upon? The right wing elitists in control of the financial markets, the natural resource markets and any other market that benefits from slavery.

Oligarchies ruled for much of humanity. The wide open country side is gone. The world is filling up and a global elite will become more and more burdensome on humanity as it must demand more from the masses to sustain it''s way of life. When Cheney spoke about defending "our way of life" he wasn''t talking about 99.9 % of american citizens. He was talking about the world of insatiable greed.

[donbl1]

Omega, those numbers are about right.

However, we currently have about a 400,000 b/d shortage out of over 8M b/d production.

The question is whether that small shortage is sufficient to drive the prices?

As I remember, the daily reported oil price is really the "spot" price for Texas sweet and does not represent long term contract price or Saudi heavy price. The "spot" price would represent that 400,000 b/d shortage.

[l8c6]

There is no conspiracy other than wide spread GREED. It is what has made America rich.

Posted by donbl1

I strongly disagree. There are those not driven solely if at all by money and power over others. Innovation and success brings out the sharks who capitalize like parasites upon the accomplishments of the greater society. These are the greed opportunists who come out like leeches and begin sucking the blood out of their host until the host must either shake them off or die. If the host is killed the leeches go down with it unless another host is found.

[l8c6]

Anti-social traders are not innovators or creators, they are leeches and opportunists that the system is designed to enable to it''s demise.

[donbl1]

18, you missed my point.

The financial side of America is all about making money. They have created the .com bubbles, housing bubbles and now the oil bubble.

Greed is their driver and their creation of wealth has funded much of America''s growth.

[rudy654-2009]

maybe i should have a radio talk show too... i can''''t believe how many followers Rush has with the garbage he spews... same goes for Hannity with his 24-hour-Wrightfest and other such ridiculous personalities. Rush just points fingers at dems all day long and Hannity does ALMOST the same. Man Coulter is just ridiculous (I''''m Jewish btw, and she hasn''''t "perfected" me yet).

Had real supply and demand taken effect here, prices would be about 2 bux a gallon for gas and oil would be about $50-60 per barrel.. there is ZERO supply shortage and no forseeable shortage even WITH China and India consuming more and more.
Posted by CANYOUTELLME at 08:21 PM

Excellent post. I have been saying the same thing. These hate radio talk show hosts have been using the public airwaves to cite krap as fact. In fact, everything they say is a virtual lie. Right now the mantra is "drill more, drill more, drill more" while flat out ignoring the reality of the crisis, which is well established in this article. I really do hold them responsible for the excrement propaganda that has led so many to brain defects. I hope someday people realize the truth and turn on those fat pigs hat radio show hosts.

[rudy654-2009]

Lately the right wing is trying to spin it and say Jimmy Carter deregulated but for the too young to remember I can tell you it was very clear who fought for deregulation. It was the right wing republican party of neo cons under the initial puppet rule of Ronald Reagan.


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Posted by l8c6 at 08:23 PM

Yep, I remember that too.