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.

[abc123a1]

Oh, I have an idea. How about place a price limit on oil and other commodities, especially gasoline? I think we did that in the early 70s. Let''s fix the price like the communists. Market is evil.

[triplet-man]

This article only legitimizes what I have been saying all along. Did the world wide demand DOUBLE in the last year? NO So why is a barrel of oil suddenly DOUBLE it''s price in such a short time.


Speculation. Which amounts to nothing more than MANIPULATION. Plain and simple.

[cbsmisleads]

CBS continues to run cover for the failed Democrat Congress. If you willfully misled would stop smoking "hopium" and open your mind you would see that world oil demand has skyrockted from 71 to 85 million barrels per day while production has stabilized at 87-88 mbpd. So spare capacity is not just 2 mbpd. This means that the slightest hints at supply disruptions, such as the attacks in Nigeria, the leftists in IRAN, Venezuela, the tyrant in Russia, hurricanes, etc cause sharp increases in price. Clinton''s veto and the Democrats refusal to allow production of Oil in Alaksa and the off beach area that China will drill regardless of US Democrats ignorance is largely to blame for $140 oil. You should do just a little homework about oil demand growth from the BRIC countries or you risk remaining fat, dumb and stupid. Of course, CBS news did a fluff piece to cover for the Democrats, that''s what the Demo media does. http://www.energytomorrow.org/media/resources/r_454.pdf

[jimmys39]

The Enron Loophole that was created by greedy people should have been closed years ago,and the senate knew all this was going to happen,instead of removing the word ENERGY they CHOSE to ignore it.ANYONE who Speculated on crude oil futures should recieve a manditory Jail Sentence and fine.CLOSE THE LOOPHOLE.

[bm6005]

Oh and before you accuse me of driving an SUV or excessively driving, forget it. I''ve cut my driving to less than 20 miles per week on average. Clue, I''m retired, but still, most people can''t get their fat ***** out of their vehicles and I did!

[bm6005]

Here''s my idea, find some of the speculators who are driving these prices up (puleezze, don''t tell me I''m naive). Off a couple of the MF''s and prices will drop. These speculators are affecting the entire world''s economy, oil prices, food prices, etc. If they are willing to toy with all these issues then make them pay the ultimate price. Believe me they can''t spend it when they''re dead!!! Obviously these F*Ks have never experienced a depression which we are in danger of starting with the outrageous behavior of these greedy pigs!!!

[tryhonesty]

Pappa Bush has been selling out our country for years to the Saudi Government. The RepubliCONs as a whole will sell out anyone for a buck...As Ronald Reagan would say "there they go again..."

[labrat9999]

Now let''s all be civil here and understand the Republican point of view. We don''t need to regulate, police or otherwise control big business. They are honest people trying to make an honest buck in a democracy and they don''t mean to hurt little people...it just happens in the course of doing business. But when it comes to invading other countries, well that''s different. We have every right to do that. And when it comes to protecting us from ourself by tossing out the Bill of Rights and the Constitution...that''s different too. Heck we wouldn''t want to start looking like a bunch of socialist, would we?

[mcv57]

RBS issues global stock and credit crash alert
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 12:19am BST 19/06/2008


Have your say Read comments

The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.

"A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank''s credit strategist.

A report by the bank''s research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets.



Really does not matter at this point.

[darnedsocks]

WHEN IS CONGRESS GONNA GET ON THIS BIG BOY?! EVERYBODY NOW KNOWS THAT IT IS THE SPECULATION THAT IS DRIVING UP THE COST OF OIL / GAS AT A TIME WHEN IT SHOULD ONLY BE SELLING FOR $2.25 / GALLON.

OUR CONGRESSMEN/WOMEN ARE ALL ON THE TAKE, TAKING "LEGALIZED" FORMS OF BRIBERY VIA CAMPAIGN CONTRIBUTIONS, ETC. FROM THE "SPECULATORS" THEMSELVES.

OUR CONGRESS NOW LIVES BY GREED, NOT BY THE PRINCIPLES OUR FOUNDING FATHERS HAD IN MIND. THEY LIVE AS TRAITORS, AND TRADE AS "TRADERS"

[Syndicate]

People seem to forget all that Ahmadinejad and Hugo Chavez have done to increase the price of oil. First they stopped accepting dollars for oil produced in their country. They have lobbied OPEC to switch to Euros over Dollars. At every opportunity they have talked the price of oil up. This is a strategic attack on the US by Iran and Venezuela. Fortunately they severely underestimated the technological prowess of the US. The Saudis seem to understand what alternative fuel actually means to OPEC and are willing to try and bring down the price of oil in order to prevent the wide spread adoption of alternative fuels. But there is speculation too. I hope gasoline hits $10 a gallon. I like the empty freeways.

[bobnjersey]

[The Feds need to step in and regulate their activities now, or do we have a Yes man as U.S. Attorney General?]
[Posted by BajaJohn1 at 12:21 PM : Jun 18, 2008]

not sure about the attorney general ... but the treasury secretary (henry paulson) is a former ceo of goldman sachs ... one of the orignal creators of this ice.

[m109876]

The rich people of the world have finally figured out how to get all the money. Didn''t we all know they would someday?

[sanitycheck]

Who are you going to believe, the politicians or the the numbers?

[komoncents]

One of the real tragedies here is that we are getting zero leadership on this matter from Washington. With the enormous buying clout of the American nation, we should be able to call the shots. But instead we''re left to flounder as Bush and cronies allow the wholesale rape of our citizens.

Of course we could each take matters into our own hands and park our automobiles. Everytime you turn the key you empower these criminals, not to mention how the environment would benefit from reduced driving.

[sanitycheck]

Found a spreadsheet on the EIA website showing world oil supply and demand from 2003 through 2007, 2005 being the last time that supply was greater than demand, and the gap has been widening ever since. The net is that in 2007 the world demand for oil outstripped supply by 830,000 bpd. And you wonder why the price is high? Here''s the link, the download is at the bottom of the left hand list Titled World Oil Balance. http://www.eia.doe.gov/oil_gas/petroleum/info_glance/petroleum.html

[sanitycheck]

I can''t believe this reporter draws a paycheck.

[jon2012-2009]

Bush and his Republican cohorts are giving capitalism a bad name, just as they have squandered America''s goodwill abroad. But managed capitalism works for the benefit of all by setting prices on goods fairly so that they remain available and, as the manner our economy is organized, it is the well-spring of our country''s wealth. Deregulation, in the guise of diminishing the heavy-handed role of government, opens the way for predators to manipulate markets and leave wreckage in their wake. Deregulation is the mantra of Republicans and we''ve seen how that has allowed fraud and greed to run rampant every time.

[barbjc1]

I am not surprised about the oil "dark Markets". It fits the mode of operation for large investment corporations in the USA.

[homespunlady]

omega39

and that''s BEFORE the halting of GWB''s OVERFILLING of the Strategic Oil Reserves that I believe is now scheduled to stop in July.

The TAXPAYER has been paying nearly $140 PER BARREL not JUST for personal use but FOR GWB to TAKE OIL OFF THE MARKET and "CHARGE" the HIGHEST PRICES IN HISTORY TO THE American TAXPAYER on top of everything else he has WASTED and DIVERTED to his BUDDIES of OUR money!

Pretty good scam actually.

GWB blaming oil prices on being PREVENTED from drilling EVERYWHERE without ANY restrictions.

It Reminds me of a TEENAGER that STEALS his parent credit card, goes on a wild spending spree, Wrecks the house with his partying and then BLAMES THE PARENTS when they finally catch up with his actions.