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Thread: BP Oil Charged With Price Manipulation

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    Featured Member Vamp's Avatar
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    Default BP Oil Charged With Price Manipulation

    WASHINGTON (AP) - Detailed allegations by federal investigators that BP traders illegally manipulated propane prices in 2004 could hurt the oil and gas industry's image at a time when consumers and Congress are upset about soaring energy costs and record profits.

    The Commodity Futures Trading Commission said Wednesday that BP traders -- with the consent of senior management -- "purchased enormous quantities of propane to establish a dominant" position in the market and then withheld fuel in order to drive prices higher

    According to the CFTC lawsuit, which was filed in the U.S. District Court for the Northern District of Illinois, the plan to manipulate prices and pump up profits began to take shape in early 2004 amid declining propane prices that were particularly painful to BP because its traders had made significant bets that prices would rise.

    Flynn said it was "ridiculous" for traders at a company the size of BP, which had profits of nearly $16 billion in 2004, to be engaged in such activity.

    "It's sort of like Bill Gates going out and shoplifting a package of bubble gum," he said.

    By the end of February 2004, BP controlled almost 90 percent of all the propane delivered on a pipeline that stretches from Mont Belvieu, Texas, to consumers as far away as New York, Pennsylvania and Illinois, investigators said. From the beginning of the month to Feb. 27, the cost of the liquid that is stripped from natural gas skyrocketed by more than 40 percent to about 90 cents per gallon -- "a price that would not otherwise have been reached under the normal pressures of supply and demand," investigators said.
    http://news.moneycentral.msn.com/pro...629&ID=5832524

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    Default Re: BP Oil Charged With Price Manipulation

    ^^^ not to take sides here, but these sort of charges have been levelled before against a variety of oil and gas companies ...

    The original report of the charge gets a lot of mainstream press coverage, while the eventual court finding (which is typically not guilty) gets covered on page 29.

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    Featured Member Vamp's Avatar
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    Default Re: BP Oil Charged With Price Manipulation

    This one just may be differant ...

    One former BP trader, 34-year-old Dennis N. Abbott of Houston, pleaded guilty in federal district court in Washington on Wednesday to partaking in a conspiracy "to manipulate and corner the propane market." Abbott, who has agreed to cooperate with law enforcement in an ongoing criminal investigation being conducted by the Federal Bureau of Investigation, faces up to five years in prison and a fine of $250,000, according to the Justice Department.

    http://www.foxnews.com/story/0,2933,...news/lawcenter


    I think it also proves that manipulating the price of oil, propane, or gas is easier than the companies and our government lead us to believe.

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    Default Re: BP Oil Charged With Price Manipulation

    I think it also proves that manipulating the price of oil, propane, or gas is easier than the companies and our government lead us to believe.
    I'm not saying that it's impossible that BP was actively trading in the Propane futures market, or that they're 'innocent' of wrongdoing. However, the NYMEX is a B-I-G market, and unlike Natural Gas significant quantities of Propane can be imported into the USA if/when market prices support doing so. I would be more inclined to think that any large scale manipulation of Propane prices was more the result of hedge fund money or petrodollars moving in and out of the NYMEX futures market. This typically goes on with Gold and Silver contracts on the COMEX (but of course nobody seems to want to investigate !).

    If BP was actually able to do this, I suspect it was related to BP buying up Gulf Coast pipeline capacity immediately after Hurricane Katrina. They will argue that this was done to assure deliveries to their subsidiary Propane distributors in northern states. The prosecution will argue that this was done to 'corner the market' creating shortages among competitors thus driving the spot price of propane sky high.

    Time will tell.

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    Default Re: BP Oil Charged With Price Manipulation

    Quote Originally Posted by Vamp
    ... I think it also proves that manipulating the price of oil, propane, or gas is easier than the companies and our government lead us to believe.
    Assuming the factual allegations contained in the Complaint are true, such that the charges leveled by the FTC against BP are valid (and, after examining same, that very much appears to be the case!), the fact that the company's traders managed to manipulate the market for propane (to the detriment of both consumers and themseleves - the company lost millions on the transactions in question) doesn't prove anything at all insofar as the markets for crude oil, natural gas and/or refined gasoline are concerned. In sum, due to the wholly different nature of not only the production, storage and distribution systems, but the "markets" (i.e., in both senses - the commodities market and the retail consumer market) as well, it's very much a case of "comparing apples and oranges," and one simply does not follow the other.

    To make a very long (and, for most, probably quite boring as well) story short, the Teppco NGL facilities at Mont Belvieu, Texas are far and away the largest source of propane in the country - so much so that the propane coming out of the facility is referred to as "TET Propane," and the rest is referred to as "Non-TET Propane." There are two primary consumers of propane: (1) the petrochemical plants on the Texas and Louisiana Gulf Coast, which are primarily supplied through Teppco's pipelines from Mont Belvieu; and (2) individuals consumers who reside in rural areas where natural gas is unavailable, a significant percentage of which are located in the North and Northeastern part of the U.S. - where their sole source of supply is the one and only pipeline running east of Ohio and north of a line drawn across the map from Kentucky to Virginia. Although NYMEX trades in Non-TET Propane, the market price nationwide is controlled by the trades in TET Propane which are reported on what's called the "ChalkBoard," an on-line "bulletin board" of sorts where buyers and sellers deal directly with one another on contracts for future delivery of specified volumes of TET Propane at a set price. So, what the FTC claims is that BP went "long" on so much TET Propane in such a short period of time that they actually owned contracts for delivery of more TET Propane than Teppco actually had in their entire system, such that they had control of nearly 90% of all the available TET Propane due for delivery at the beginning of the next month - figuring that when the end of the month came and the traders who were "short" had no choice but to pick up what they owed on the market, they'd be able to make enough off of them before they knocked the price out from under themselves selling that it would not only cover the loss they'd take on the amounts they were left holding but produce a substantial ($15-$20M) profit as well. Didn't work, and BP wound up losing several million in the process instead. However, they did manage to cause a huge spike in the price of both TET and Non-TET Propane which, because of their timing (winter), hit individual consumers in NE hardest.

    In contrast, the crude oil, natural gas and refined gasoline markets all have numerous sources and distributors/distribution systems and, most important of all, are each traded in volumes and on markets that are hundreds, if not thousands of times both the size and dollar value of the trade in TET Propane futures - such that even a BP-sized trader can't really make much of a difference because there's just too many alternative sellers and too high of a dollar value trading in those markets on a daily basis.
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