US regulators sue big oil traders for oil price manipulation

US regulators launched one of the biggest ever crackdowns on oil price manipulation on Tuesday, suing two well known traders and two trading firms owned by Norwegian billionaire John Fredriksen for allegedly making $50 million by squeezing markets in 2008.

The CFTC said traders James Dyer of Oklahoma’s Parnon Energy, and Nick Wildgoose of Europe based Arcadia Energy, amassed large physical positions at a key US trading hub to create the impression of tight supplies that would boost oil prices.

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

“Defendants conducted a manipulative cycle, driving the price of WTI crude to artificial highs and then back down, to make unlawful profits.” the lawsuit filed in New York said.

“This is a very big deal in that we seldom allege that the defendants manipulated the crude oil market to the tune of 50 million dollars in ill gotten gains.” CFTC commissioner Bart Chilton told Reuters.

“That’s an awful lot of money, and when we look at how consumers are suffering at the gas pump, we need to prosecute activity like this to the fullest extent of our authority under the law,” Chilton said.

While the civil suit comes after three years of heightened scrutiny into oil price speculation by the CFTC, it also arrives at a time when President Barack Obama is seeking to reassure Americans he is trying to curb high US gasoline prices and ensure they aren’t subject to manipulation.

The suit names two traders familiar to US oil market veterans, who recall Dyer and Wildgoose from their days as high flying traders at BP in the early 2000s, when the British oil giant’s trading practices were under scrutiny due to its large ownership of oil tanks at Cushing, Oklahoma, the delivery point for US oil futures.

BP was hit with a record $2.5 million fine by the New York Mercantile Exchange in 2003 for alleged US oil market manipulation, which it paid without admitting any wrongdoing. That case did not include any allegations of misconduct by Dyer or Wildgoose.

Both Parnon and Arcadia are controlled by shipping magnate Fredriksen, who was born in Norway but is based in Cyprus, and whose $10.7 billion fortune placed him at number 72 in the latest Forbes list of the world’s billionaires.

A CFTC spokesman declined comment on the specific damages it would seek in the suit.

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US regulators sue big oil traders for oil price manipulation