FTC Rule Barring Oil Manipulation

I’m sure the final rule will have a lot less oomph, and plenty of loopholes.

Under pressure from federal lawmakers concerned about high energy prices, the U.S. Federal Trade Commission proposed a rule prohibiting petroleum-market manipulation, giving the agency authority to levy fines of up to $1 million per violation a day.

The proposed rule — which would cover both spot and futures markets — is designed to increase oversight of the crude-oil, natural-gas, gasoline and other product markets as directed by Congress late last year.

As oil prices surged to nearly $150 a barrel in July, many lawmakers increased pressure on the FTC to promulgate the antimanipulation rule, feeling existing oversight was too weak and laxly regulated. Lawmakers are concerned that excessive speculation — and possible manipulation — in the oil markets helped drive prices to record levels, and are seeking ways to enforce tougher market oversight. Congress is considering legislation designed to rein in speculative trading deemed to be distorting the market.

[From FTC Proposes Rule Barring Oil Manipulation – WSJ.com]

Potential fines are discussed:

If the agency enacts the rule as it is currently written, it could subject violators with penalties of up to $1 million per violation per day. The FTC said it aimed to conclude the rule-making process by the end of the year. It drew immediate praise from some lawmakers who have been pushing for more stringent oversight of the markets.

This is some serious cheese for violators. As an example, Exxon Mobil’s profit in 2007¹ was in the vicinity of $4,633,200 per hour, or $111,196,800 per day. A million dollar fine would reduce Exxon Mobil’s daily profit to a paltry $110,196,800 a day! Won’t somebody think of the children! Of course, I’m not sure Exxon Mobil would be covered by these rules anyway, I’m sure nobody at Exxon Mobil is involved in speculation of oil futures, right? but sounds like there will be a lot more discussion before anything gets enacted in any case.

Given that the proposed rule covers the futures market — also the domain of the Commodity Futures Trading Commission — it is likely to upgrade a regulatory turf battle between agencies and spur activity by the CFTC.

Lots of discussion and posturing, and lots of profits to be snatched in the meantime. By the end of the year, Obama will be elected, and the glory years of oil companies might start to sputter.²

1. so far 2008 is much higher, so adjust all these numbers by numbers that your calculator can’t even handle [↩]
2. let us fervently pray so, anyway, though there is no guarantee that Obama will have the intestinal fortitude to tell the oil industry and Wall Street to reign their greed in [↩]