BP Accused of Crude Oil Price Manipulation

Nationally the average price for regular unleaded gasoline is $2.658, down about 3 cents per gallon from a week ago. Montana's gasoline prices have leveled off at $2.72 with California staying high at $3.01 per gallon. Hawaii gets the prize for the highest cost for gasoline at $3.09 per gallon in the AAA fuelgauge.report. The gasoline spot market price meanwhile has dropped by 20 cents per gallon in the last two weeks but retail pump prices have not reacted in kind and are not expected to drop much more before the end of next week.

Pump prices have barely budged with the spot market gasoline and diesel prices going down another 2-3 cents per gallon at the end of this week. The August WTI crude oil price decreased $1.07 to just above $69.16 a barrel on Friday

The big petroleum industry news published in the Oklahoma Daily Journal on Friday was that State Attorney General Drew Edmondson had filed a lawsuit against BP/Arco (BP). He is accusing them of gaming the price of gasoline and crude oil since 2002. This alleged scheme had previously been brought to the attention of the Federal Trade Commission but Edmondson claims to have found fresh evidence that BP was able to manipulate gas prices by hoarding short-term motor fuel and crude oil supplies.

The Federal Trade Commission (FTC) investigated those same allegations in 2006. At that time, BP/Arco was suspected of manipulating the petroleum market by controlling the physical West Texas Intermediate (WTI) crude oil inventory at the Cushing, Oklahoma terminal. They have since divested some of those assets but they are still dominant in trading WTI at the Cushing terminal.

The initial investigation into trading practices between oil companies was called for by Congress in the wake of the huge gasoline and fuel price spikes, which occurred in the aftermath of the Rita and Katrina hurricanes. Those storms ended up hitting refinery complex located on the U.S. Gulf Coast in August and September of 2005. Extensive damage was incurred to those refineries and interrupted the supply of crude oil, finished fuels and lubricating oils to the market.

The oil companies were absolved of any wrong doing by the FTC in the "Investigation of Gasoline Price Manipulation and Post-Katrina Gasoline Price Increases” published in the spring of 2006. That report concluded that normal supply and demand market forces were the reasons for the price variances in the petroleum markets.

AG Drew Edmondson has announced his intentions to be a candidate for Governor in Oklahoma in 2010. That announcement and the filing of the lawsuit against BP/Arco were coincidentally made on June 10, 2009. Any outcome of this lawsuit will definitely also have an effect on the upcoming election in crude oil rich Oklahoma.

Comments

[Michael D.:]

Don't like the price? Don't buy it. The increase in reserves will drive the price down.

BP (and others) are merely optimizing cash flows and oil/gas reserves. Sell lots when the price is high, if the price drops too much restrict supply.

Jun 28 10:14 AM

[Michael Boyter:]

The Oil Companies have been gaming the price since the Rockerfellers paid off congress in the 20s and gave a small group of religious radicals the equilivant of 50 million to lobby for oil over alcohol as a fuel and the electric car. The monolopies have been around for a long time. For a good history of this I suggest you check out the book by David Blume, "Alcohol Can Be A Gas"

Jun 28 10:43 AM

[The Greates...:]

I wonder why the Sherman Anti-trust law has never been inforced?

Jun 28 11:18 AM

[The Greates...:]

Americans are not buying gas at the price they have it today, thats why there was a 1.3 million barrel increase in gas stock plyes in June.

Jun 28 11:20 AM

[juangalt:]

manipulation? their nets are below average. you want to prosecute for price manipulation go after the pharmaceutical companies.

Jun 28 11:24 AM

[The Greates...:]

I wonder whe the Sherman Anti-trust act has never been inforced on the oil industry?

Jun 28 12:00 PM

[searcher:]

I shudder to think of what desperate straights we'd be in today if not for the selflessly passionate efforts of public servants like Attorney General Edmondson. It's only through the paladins of the public interest sector that we are shielded from the rapacious corporations. God Bless our protectors.

Jun 28 01:01 PM

[untrusting ...:]

Rather than the oil companies, they really ought to be investigating the traders such as Goldman, JPM, etc. The traders are much more likely the culprits in manipulating oil prices than are the oil companies. They could do something about it if they really wanted to. Such as: 1) increase margin requirements substantially on crude oil trading, 2) mandate physical delivery on option contracts instead of allowing them to be rolled over. But don't hold your breath waiting for any changes that could reduce speculation in oil, because it is far to profitable for the traders to think that any changes would be enacted to reduce oil speculation.


On Jun 28 11:24 AM juangalt wrote:

> manipulation? their nets are below average. you want to prosecute
> for price manipulation go after the pharmaceutical companies.

Jun 28 02:16 PM

[valinho:]

Since we are all seekingalpha readers, check out the posts by Phil Davis, undisputably the best explained post about the present problems with oil prices. Most of all we need to hold our elected officials to do what they were elected for, represent the citizens and their interests.

Jun 28 05:27 PM

[long_on_oil:]

If the oil companies are price fixing it sure has not effected their stock prices. Had you purchased BP in December every year since 2001 the average purchase price would have been $55 a share. Based on current dividend that is a 6.6% yield.
Conclusion: You buy oil companies for the dividend not the capital appreciation. Oil companies by and large are poor long term investments because everytime they start making decent profits the government comes down on them.
As a society we want low gas prices and a constant supply. But exploration requires huge profits so in the long run we can't have our cake and eat it too.

Jun 29 08:32 AM

[user396040:]

With the exception of OPEC's (really Saudi Arabia"s) ability to throttle back production and drive prices up when there is very little spare capacity, the oil industry is workably competitive and market shares are such that price fixing by an individual company on any kind of meaningful scale is not possible. There are many producers and distributors. There is considerable concentration at the refiner level but domestic refiners compete with imported refined products. Oil pipelines are regulated by FERC. While local price fixing is possible, it is not a significant element in what determines oil prices in the United States. As a potential solution to our national energy problem ( a problem with environmental, financial and national security dimensions), the "enforcement of the antitrust law" is a dead end and a distraction.

Jun 29 11:50 AM