U.S. Sues Big Oil Traders

Business Day

Global trading house Arcadia Energy rejected Wednesday claims that its traders had manipulated oil markets in early 2008, saying it would fight the suit in court.

"The CFTC is wrong on both the facts and the law," said Colin Hurley, the CFO of Arcadia.

The quick rebuttal sets up a rare public showdown over trading practices in the opaque physical oil market. Many such past cases have been settled out of court, and regulators have struggled in the past to make manipulation charges stick.

The CFTC sued firms and traders, including Arcadia and U.S. subsidiary Parnon Energy Tuesday, alleging they carried out an illegal squeeze in benchmark U.S. WTI oil markets in 2008 that led to US$50M in illicit profits.

"Arcadia has carefully looked at its WTI oil trading in the period from January–April 2008, and retained independent experts to assist in that process," said Hurley, who also speaks for Parnon.

"In short, our activity involved legitimate and lawful trades at market prices that were dictated by the fundamentals of supply and demand. . .we look forward to proving this in court."

The CFTC said traders Parnon's James Dyer and Arcadia's Nick Wildgoose amassed large physical positions at a key U.S. trading hub to create the impression of tight supplies to boost oil prices.

Later they dumped those barrels back onto the market, causing prices to fall and racking up profits from short positions they'd accrued in futures markets, the suit said.

The CFTC's complaint alleges both manipulation and attempted market manipulation. Proving the former is considered extremely difficult because so many factors can affect prices.

"If they're alleging manipulation, that means that the data is pretty dramatic," said University of Maryland School of Law Professor Michael Greenberger, a former CFTC director of the division of trading and markets.