CFTC Scrutinizing Crude Oil Trading, Energy Futures

The U.S. Commodity Futures Trading Commission (CFTC) announced last week a number of initiatives to increase transparency of the energy futures markets, while the Washington Post reported that the Commission had been investigating crude oil trading, storage and transportation for the past six months with a focus on possible "futures market manipulation."

The Commodity Futures Trading Commission normally keeps investigations confidential, the newspaper reported, but the Commission said it was "taking the extraordinary step of disclosing this investigation because of today’s unprecedented market conditions."

CFTC Director of Enforcement Gregory Mocek said five senior trial lawyers, "some of the most experienced prosecutors that we have," and other investigators were engaged in the inquiry. "The scope is quite broad," Mocek told the Washington Post, adding that the commission was looking at the "national crude market," including trades on regulated exchanges, cash trades, storage, pipeline operations and shipping.

Apart from the investigation, CFTC’s initiatives will “expand the amount and quality of information received from energy traders to further the integrity and oversight of our nation’s futures markets.”

CFTC said implementation of the measures will improve oversight of the energy futures markets to ensure they reflect fundamental economic forces of supply and demand, free of manipulation and fraud.

Said CFTC Acting Chairman Walt Lukken and Commissioners Michael Dunn, Jill Sommers and Bart Chilton: “All Americans are significantly affected by high energy prices—whether it’s paying more at the pump, or higher costs for farmers and entrepreneurs. Today, the Commission is taking important steps to ensure that the U.S. energy futures markets function properly and operate free from manipulation and abuse. With these initiatives, we are improving our oversight capabilities and bringing greater sunshine to these markets.”

CFTC is calling for expanded international surveillance information for crude oil trading, and it has reached an agreement with UK and European bodies for possible expanded information sharing in this effort. The agreement includes:

  • Immediately implementing expanded information sharing to provide the CFTC with daily large trader positions in the UK WTI crude oil contract
  • Extending trader information sharing to provide crude oil large trader position data for all contract months in the WTI contract, not just the nearby months
  • A near-term commitment to enhance trader information to permit more detailed identification of market end users
  • A near-term commitment to provide improved data formatting so trading information can be seamlessly integrated into the CFTC’s surveillance system
  • In addition to the established position management program that FSA currently requires of ICE Futures Europe, ICE Futures Europe will notify the CFTC when traders exceed position accountability levels, as established by U.S. designated contract markets, for WTI crude oil contracts.

    In addition, CFTC is calling for increased transparency of trading in U.S. energy markets. The Commission is taking the following steps to gather additional information from the energy futures markets:

  • Improve transparency for energy markets index trading activity: The Commission will use its existing special call authorities to immediately begin to require traders in the energy markets to provide the agency with monthly reports of their index trading to help the CFTC further identify the amount and impact of this type of trading in the markets.
  • Review of trader reporting and classification: The Commission will develop a proposal to routinely require more detailed information from index traders and swaps dealers in the futures markets, and to review whether classification of these types of traders can be improved for regulatory and reporting purposes. 

  • Examine trading practices for index traders: The Commission will review the trading practices for index traders in the futures markets to ensure that this type of trading activity is not adversely impacting the price discovery process, and to determine whether different practices should be employed.

    Lastly, the CFTC will pursue the continuation of an ongoing CFTC nationwide crude oil investigation.

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