Is Market Manipulation Causing High Energy Prices?

Reuters reports that the FTC is “investigating whether oil (NYSE:USO) companies have engaged in anticompetitive practices or manipulated crude oil prices,” in seeking answers to recent volatility in prices in the energy market that seem irregular in their correlation to financial indicators. The commission is probing oil companies to see whether they have misreported wholesale prices of oil and petroleum products. The organization has approved the use of “compulsory process” whereby they can require individuals to submit information related to the Federal inquiry.

The action by the feds is a steep move forward in the path towards litigating potential securities violations in the commodities markets. Legislators had been pressing the commission to take these steps for some time, as early as March, when several congressional representatives approached the FTC and ask that they begin to formally investigate fraud in the oil market. The Obama administration had set up a task force with the same goal in mind earlier in the year.

The most jarring evidence against oil (NYSE:USO) companies is a notable under-utilization of their refining capacities. According to the Energy Information Administration, refineries were only working at 81.7% of capacity in May (7% lower than the same time last year), which was strange considering oil prices had peaked at $114 per barrel in April. The FTC cited this low capacity usage in addition to increasingly high refining margins as the reasons for the launch of its probe.

Oil reps are unsurprisingly irritated by the FTC’s decision to launch the investigation. According to the leader of the National Petrochemical & Refiners Association Chris Drevna.”Dozens of investigations of gasoline price fixing over the years have generated plenty of headlines and political hyperbole, but have failed again and again to find any evidence of wrongdoing.”

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