Oozing with civic responsibility and purporting to show deep concern about the need to address the issue of greenhouse gas emissions, the oil industry giant BP has launched a massive public relations and advertising campaign to convince us that it is a responsible corporate citizen. Its ads are most everywhere.
And why not, at the prices we pay and the profits the company is making they can well afford to spend tens of millions if not hundreds of millions. What isn't so generally known, though, is that only last year BP agreed to a settlement with the New York Mercantile Exchange (the NYMERC), paying a substantial settlement to resolve allegations of improper oil trading activities and assurances to clean up its trading activities in the future. The settlement cited so-called wash trades-- the simultaneous swaps of the same amount of a commodity for the same price. The technique is used to improperly boost trading volumes or revenue and, most significantly, to influence market pricing.
Then, only last month, in a civil complaint filed in federal court in Chicago the Commodity Futures Trading Commission outlined what it said was a scheme by BP to manipulate the price of propane, alleging that executives at the BP trading unit approved the effort.
To an open mind BP's actions have enormous significance- perhaps not so much in what BP did or didn't do, but in the realization that the futures markets in oil and oil products can and have been manipulated. Back in January in one of my postings "A Funny Thing Happened on the Way to the Gas Pump" (01/15/06) argued that the manipulation of oil futures trading was in all probability a prime cause for escalating oil prices (over 500% in the last six years). That the opaqueness of futures trading (large blocs can be traded without knowing who is actually doing the trading), and trading venues worldwide ( i.e. New York, London, Singapore to name a few trading centers) lends itself to an almost total lack of enforceable regulation.
That there are vast pockets of financial power in the hands of players who who have a very real interest in seeing prices rise. As an example, OPEC members have such a capability and such an interest in manipulating prices, and most dangerously are outside the ken of any oversight.
One cannot deny that OPEC is a cartel. And it is in the nature of a cartel not only to control supply, but also to support policies that help its members achieve their objectives. Certainly one of OPEC's objectives is to sell their oil at the highest price that can be manipulated and which the market can still bear. And they have been enormously successful at doing just that.
BP has enormous resources, but compared to OPEC, BP is a bit player. And being an international company with Anglo-American roots it does not have the sovereign legal immunity extended to OPEC and its minions. Therefore there are consequences to pay for BP when it gets caught.
Earlier, I commented that these observations would have significance to those with an open mind. And that's the rub. Last week I attended a lecture by Alan Greenspan at the Aspen Institute. He spoke at length and in depth on "Oil and Gas: The Next 50 Years". He touched on many points and, in my view, repeated a long laundry list of the oil patch's multifaceted rationale for current high prices; looming shortages of supply, production constraints, political uncertainties and on, ever laying the groundwork for even higher prices. Repeatedly he made references to speculation on the futures exchanges and presented a rather convoluted rationale why speculation in futures derivatives, while a factor in facilitating higher prices, was in its way good for the economy encouraging alternative solutions, anticipating dislocations and presenting a means to manage heightened risk. I guess it all comes hand in glove with an ingrained belief of the cathartic effect of high interest rates. But back to the point.
Speculation was mentioned over and over again as an acceptable and efficient rationalization for market movements good and bad. But never once, not once, did the word "manipulation" cross his lips. As if the hallowed hand of "market forces" were the key and only determinant of all that was happening in the oil patch. With a man of Greenspan's stature one needs a BP to break the accepted spell of the "market forces" to which he is so clearly wedded, to which he so faithfully subscribes and to which he would like us all to be believers or become converts.
He is, of course not alone. The oil companies want us to believe in the "market forces", the players in the futures game want us to believe in "market forces", important swaths of our government want us to believe in "market forces", our financial community and its analysts, especially those servicing the energy field want us to believe in "market forces". Certainly "K Street" and its politically well oiled lobbyists want us to believe in "market forces". Most certainly OPEC wants us to believe in "market forces" as does our press (see "As Oil Prices Rise The Media Slumbered Away (Psst-Don't Wake Up The New York Times or Wall Street Journal" 04/25/06) whether it be financial commentators or editorial writers, also want us to believe in "market forces".
We all owe BP a great vote of thanks. It has shown us, by action and deed, the extent of our naiveté. And if only our government and watchdog institutions would now take the initiative to closely exam how oil and oil products are traded, by whom, and based on what. A little sunlight could go a long way to cleansing out this con game that is beginning to suck the lifeblood out of our economy and corrupting our society by transferring unearned, unwarranted wealth to the oil patch and the OPEC cabal.