WHITE PLAINS, N.Y. – BP, Shell and Statoil fixed North Sea crude oil prices and restricted trade for years by misleading reporting agencies, a trader claims in a federal class action.
Lead plaintiff Prime International Trading sued BP, Royal Dutch Shell and Norwegian oil company Statoil, in Federal Court.
Chicago-based Prime International is a member of the Chicago Board of Trade, Chicago Mercantile Exchange, NYMEX (the New York Mercantile Exchange) and ICE (the Intercontinental Exchange), the world’s largest energy futures exchanges.
Prime claims the defendants and unnamed co-conspirators deliberately reported inaccurate information about North Sea sweet light crude oil (a commodity known as Brent Crude oil) to Platts, the leading reporting agency for the Brent Crude Oil commodity and futures contracts traded on NYMEX and ICE, undermining the entire pricing structure for the Brent Crude oil market since 2002.
Platts, a unit of McGraw Hill Financial, compiles and publishes Brent Crude oil prices for traders in the United States. Platts is not a party to the complaint.
“As major producers and market participants in the Brent Crude oil market, including contributors of Brent Crude oil prices to Platts, defendants had and continued to have market power and the ability to influence prices in the Brent Crude oil market,” the complaint states. “By purposefully reporting inaccurate, misleading and false Brent Crude oil trade information to Platts, defendants manipulated and restrained trade in both the physical (spot) Brent Crude oil market and the Brent Crude oil futures market.” (Parentheses in complaint.)
The European Commission confirmed this month that it is investigating several companies that may have reported distorted prices for crude oil and conspired to monopolize price-setting, according to the complaint.
“Almost immediately following the European Commission’s announcement on May 14, defendants BP plc, Royal Dutch Shell plc and Statoil ASA each confirmed they are the subject of the European Commission investigation,” the complaint states. “In particular, defendant Statoil confirmed that its office in Stavanger (Norway) was subject to an inspection by the EFTA Surveillance Authority, assisted by the Norwegian Competition Authority. Statoil acknowledged that the inspection was carried out at the request of the European Commission. Further, Statoil confirmed that the scope of the European Commission’s investigation is ‘related to the Platts’ market-on-close price assessment process, used to report prices in particular for crude oil, refined oil products and biofuels’ extending back to as early as 2002.
“On May 17, 2013, the U.K. Serious Fraud Office announced that it was ‘urgently reviewing’ the European Commission’s allegations of price-fixing in the oil markets and determining whether to accept the case for ‘criminal investigation.’ That same day, the United States Senate called for the U.S. Department of Justice to join the European Commission investigation.”
Prime International claims it traded hundreds of thousands of Brent Crude futures contracts at prices manipulated by the defendants’ price-fixing. It claims to represent thousands of traders who have been misled by the manipulated prices since 2002.
It claims the defendants knew that misreporting crude oil prices to Platts would have a serious impact on the U.S. market for crude oil, refined oil products, biofuels and futures contracts.
“The Brent oilfields in the North Sea currently have the highest physical daily output of any of the world’s recognized oil benchmarks,” the complaint states. “Brent is the leading global price benchmark for Atlantic basin crude oils and it is used to price two-thirds of the world’s internationally traded crude oil supplies.”
Prime International claims the defendants nonetheless continued “their deliberate and systematic submission of false Brent Crude oil trade information to Platts.”
It seeks class certification, an injunction, restitution, and damages for violations of the Commodity Exchange Act, the Sherman Act, and unjust enrichment.
Prime International is represented by Vincent Briganti with Lowey Dannenberg Cohen & Hart.
Here we go again. A sudden surge in the price of gasoline and heating oil is followed by reported expressions of frustrated despair by hard-pressed consumers in the midst of silence from the oil companies and abdication of responsibility by the elected and appointed officials of federal and state governments.
The price of gasoline is up by about 50 cents in the past month, according to AAA, making the average gallon go for close to $4 per gallon in many parts of the country. Prices are even higher in California. AAA says that this “is the most expensive we’ve seen gasoline in the dead of winter.”
Every penny increase in the annual price of gasoline takes over $1.6 billion dollars from the pockets of American consumers (Source). That doesn’t even count the higher prices for heating oil homeowners are paying.
There was a time when even a few cents increase in the price of gasoline or natural gas would provoke Congressional investigations, actions by state Attorneys General, and condemnations of the producer countries, the OPEC cartel and Big Oil from presidents and the heads of antitrust divisions of the Justice Department or the Federal Trade Commission. That is, until smooth, smiling Ronald Reagan came to Washington, D.C. with his mantra that “government is not the solution; government is the problem.”
Well, now the multi-layered petroleum cartel has become institutionalized, having “gotten government off its back” and they’ve put the New York Mercantile Exchange speculators at the gaming tables.
There seems to be an adequate supply of crude oil in this recessionary global economy. What could be the cause of this latest price spike? The news media offer a spectrum of possible factors – restrictions on exports of Iranian oil imposed by western governments, instability in Syria and elsewhere in the volatile Middle East, oil hungry China, oil speculators on Wall Street and reduced refinery capacity in the U.S.
Each price surge in recent decades seems to have different principal causes. This time it seems to have been precipitated by surging prices of crude – easily manipulated – and in the U.S. the permanent or temporary shutdown for repairs, of too many refineries.
Believe it or not, the U.S. is now a net refined petroleum importer because of the continuing refusal by the industry to rebuild or expand refinery capacity on the very sites where many refineries have been shut down, often in favor of offshore, cheaper installations.
Whenever supply and demand for refined oil products is tight, all it takes is for one or two refineries to suspend operations, other than for repairs, and the prices surge all over the country.
This happened in January to a refinery in California, due to a fire, and more prominently the closure of a key refinery in Port Reading, New Jersey, owned by the Hess company. Five dollars a gallon gas “is a real possibility,” John Kilduff, partner at Again Capital, told Yahoo! Finance, adding “this is partly being driven by the lost refinery capacity of about one million barrels per day…that’s a lot.” (The U.S. consumes about 19 million barrels a day of refined petroleum products.)
So what can our so-called representatives in Washington do about a gouge that has angered almost all conservative and liberal consumers? Well, the Democratically-controlled Senate can start by holding investigatory hearings. The President can speak out more forcefully and indicate he may release some of the government’s crude oil reserves to increase supply.
He can order his Justice Department to at the very least subpoena pertinent oil industry information for starters.
Mr. Obama can forcefully back up Gary Gensler, his appointed, savvy Chairman of the Commodity Futures Trading Commission, who has been trying to rein in excessive speculation that drives up prices and punishes the motoring public.
In 2011 CFTC data showed that massive inflows of speculative money drove up prices. At that time, even Goldman Sachs analyst, David Greely, claimed Wall Street speculation in the futures market was driving up oil prices. Earlier, Rex Tillerson, the head of ExxonMobil, estimated that speculation was responsible for a more than $40 per barrel price increase when oil was just over $100 per barrel. Over the last month crude oil has ranged in price from $93-$120 per barrel.
Admiral Hyman Rickover who, more than 40 years ago, wisely said that there should always be government-owned shipyards to provide a yardstick by which to restrain the high prices and cost overruns being charged by private ship buildings manufacturing the Navy’s ships. That means, in this oil price context, that the government should own and operate some refineries for the armed forces. Any excess capacity could loosen the market with gasoline and heating oil when the corporate interests maneuver tight supplies for which they get immediately rewarded with cold cash.
Were Obama to direct some of his bully pulpit heat on those members of Congress who are marinated in oil, he might find more support from Capitol Hill for all these initiatives.
So call the switchboard at the White House comment line (202-456-1111) and tell the president that you are fed up and determined to drive less, carpool and walk more where possible, but that he, the president, must be more aggressive in taking on the staggeringly profitable and tax-favored big oil companies.
One of our longstanding arguments about the folly of American policy on Iran-related sanctions is that it is incentivizing rising powers like China and the other BRICS countries (Brazil, Russia, India, and South Africa, along with China) to develop alternatives to U.S.-controlled mechanisms for conducting, financing, and settling the international exchange of goods, services, and capital. As the latest sets of U.S. and European Union sanctions against the Islamic Republic were going into effect, Neelam Deo (a former Indian diplomat who now directs Gateway House, the Indian Council on Global Relations) and Akshay Mathur (head of research and geoeconomics fellow at Gateway House) published a brilliant opinion piece in The Financial Times outlining precisely how such alternative mechanisms are likely to emerge, see here.
Deo and Mathur note at the outset of their article that “two recent developments—the $75 billion bailout contribution from the BRICS countries to the IMF, and the Western push for sanctions against Iran—show how exposed the BRICS economies are to Western financial policies. For decades, they have been successfully co-opted to submit to Western-dominated institutions, leaving them with little motivation to build their own.”
Now, however, “the BRICS must urgently organize to build institutions of mutual economic benefit”; the newest round of Iran-related sanctions from the United States “highlights the urgency of the issue.” The BRICS are “hostage to Western sanctions because the conduits of international finance, trade and transportation use[d] for crude oil trade are controlled by the West. The entire pricing framework is U.S. dollar based. The New York Mercantile Exchange (NYMEX) and London’s International Commodities Exchange (ICE) conduct the largest trade for crude oil futures contracts… There is SWIFT, the global code for electronic banking transactions. In March, SWIFT banned Iran’s banks from conducting business, leaving oil importers like India lurching for payment mechanisms. Ditto with transportation [and insurance] options.”
Deo and Mathur note that “the BRICS are finding creative ways to pay Iran” and to provide insurance coverage for shipments of Iranian crude. But rising powers nonetheless face a daunting structural challenge. Deo and Mathur warn that “the sanctions are an issue for energy exporters like Brazil and Russia too. The Western-dominated system that is strangling Iran, can do the same to others should their geopolitics be deemed inconvenient. Iran today, could be Russia or Brazil tomorrow.”
So what, then, can the BRICS do to rectify these structural imbalances that the United States and its European partners seem all too ready to leverage as a way of keeping rising powers subordinated to Western preferences? Deo and Mathur offer some genuinely creative answers:
“Apart from the already proposed multilateral BRICS Bank, should be a clearing union and insurance club to facilitate international trade, finance and transporation. For instance, though China and India have a deficit with Iran, Brazil and Russia do not. If a new trade settlement system is created—like the Asian Clearing Union establishied in Tehran in 1974 or the International Clearing Union proposed at Bretton Woods in 1944—but with BRICS currencies, Iran can use the Rupees or Renminbi [it earns from exporting oil to India and China] to pay Brazil, and not amass rice and toys. Brazil can use the same system to pay India for its bilateral trade, thereby facilitating multilateral local currency swaps for intra- and inter-BRICS trade. New commodity exchanges can be promoted to enable alternate means of price discovery and benchmarking in currencies.”
Deo and Mathur acknowledge that “activating these regimes will require adjustments. China’s reserves are in dollars; it will have to balance preserving that value with internationalizing the Renminbi—a stated Chinese goal achievable under a new system. External partners like Iran will have to make an effort to increase trade with BRICS to avail of the new system’s benefits. Net importer India will have to offer more competitive products and services within BRICS. In return, net exporters China and Russia may have to patiently hold weaker currencies like the Rupee until a balanced equation is achieved.
Deo and Mathur also acknowledge that “there will be resistance from the U.S. and Europe,” out to preserve “the almighty dollar” and their ability to leverage non-Western powers through hegemonic extraterritorial sanctions—in our assessment, clearly illegal, see here. More broadly, Deo and Mathur admit that “the West has dismissed the workability” of BRICS-led international economic institutions. “But,” they conclude, “if 28 countries in NATO could unite to contain Russia, surely the five nations of BRICS can come together to ensure their geo-economic future.”
Read their article and get a glimpse at what is likely to be an important part of the future.
- Chile Is Latest Country To Launch Renminbi Swaps And Settlement (zerohedge.com)
- BRICS to Announce IMF Contribution at G-20 Meeting, Brazil Says – Bloomberg (bloomberg.com)
- Could sanctions on Iran bolster the renminbi? (wantchinatimes.com)
- Iran, the BRICS and Why Gold is Now Money (beta.fool.com)
- India, Iran plan talks to bypass Western sanctions on Tehran (thehindu.com)
Gasoline and heating oil prices are ratcheting up. In California, some motorists are paying over $5 per gallon. President Obama declared that “there is no quick fix” for this problem. Meanwhile, the hapless but howling Republicans are blaming him for the fuel surge as if he is a price control czar.
Indeed, President Obama has some proper power to cool off retail petroleum prices. David Stockman, President Ronald Reagan’s Budget Director, said it plainly on CNN last week, “Stop beating the war drums right now [against Iran], and Obama could do that, and he could say the neocons are history.” Having done his stint on Wall Street, Stockman knows that war talk by the war hawks inside and outside of our government is just what the speculators on the New York Mercantile Exchange want to hear as they bid up the price. Your gasoline prices are not charging up due to strains between supply and demand. Speculation, with those notorious derivatives and swaps, is what is poking larger holes in your fuel budget, according to Securities and Exchange Commission enforcement lawyers. The too-big-to-fail Wall Street gamblers – Goldman Sachs, JP Morgan Chase, Bank of America, Merrill Lynch, and Morgan Stanley – are at it again.
Dr. Mark Cooper of the Consumer Federation of America documented that speculation added $600 to the average family’s gasoline expenditures in 2011. Earlier, the head of Exxon/Mobil estimated that speculation was responsible for over $40 per barrel in price increase at a time when oil was more than $100 per barrel.
Last June, the Commodity Futures Trading Commission (CFTC) Chairman, Gary Gensler, declared in New York City that “huge inflows of speculative money create a self-fulfilling prophecy that drives up commodity prices.”
Mr. Gensler and the CFTC received more legislated authority to police these Wall Street gamblers, but key members of Congress refused to give him a budget to, in his words, “be a more effective cop on the beat,” at a time of sharply-increasing trading volume. Congressional campaign budgets are being swelled by campaign contributions from those very Wall Street gamblers. This is called “cash-register politics.” Meanwhile, you the people pay and pay at the pump and wonder why no one is doing anything about it.
But an inadequate budget only explains part of Mr. Gensler’s problems. He is continually undermined by other CFTC Commissioners who do not want real enforcement action. He also seems to be wearing down under the pressure.
Back in the 1970s, a sudden increase in gasoline prices – even a few cents – led to an uproar among consumers and demands for regulation, price controls and other government action. Now that the New York Mercantile Exchange, with its big banking and hedge fund speculators loading up on fat profits and bonuses is right here in the U.S., officials are throwing up their hands saying “there are no quick fixes.”
Yet by the constant Israeli-Obama-Hillary Clinton-Congressional-AIPAC belligerent talk about Iran developing a capability to produce nuclear weapons is provoking Tehran’s warnings about the Straits of Hormuz, and the oil price speculators are having a field day with your gas dollars.
Senator Bernie Sanders (I-Vt.) regularly demands that that Obama’s regulators impose limits on oil speculations. He asserts that the “skyrocketing price of gas and oil has nothing to do with the fundamentals of supply and demand.” Even Goldman Sachs analyst, David Greely, claimed Wall Street speculation in the futures market is driving up oil prices.
In response to such clamorings, President Obama announced in April 2011 a new inter-agency working group to combat fraud. Don’t hold your breath waiting for any action here.
So why doesn’t President Obama invite the various industries such as the trucking and airline companies that are hurt by spiraling oil prices, together with consumer groups, motorist organizations, such as AAA and Better World Society, and the relevant government agencies to generate the pressure on Congress and the recalcitrant members of the CFTC to stop fronting for the Wall Street casino giants?
Mr. Obama and Energy Secretary Chu keep saying that there is enough oil in world markets and that speculatively-driven higher oil prices are undermining the U.S. economic recovery. Yet Mr. Obama seems unwilling to fully use his administration’s existing authority to crack down on the surging speculation.
There is much more action possible under current statutory authority for the regulators to use and earn their salaries. They need to hear louder rumblings from the people. While the people need, whenever possible and safe, to walk short distances instead of drive there, if only to stiffen their determination to fight back in more than one way.