Monday, October 28, 2013

Commodity Market Squeezes of the Past decade

From Reuters:

...TRADER: Arcadia, with assistance
MARKET: Dated Brent
PERIOD: 2000
STRATEGY: Tosco claimed in a lawsuit, later settled out of court, that Arcadia gained a monopoly position in late August and early September after obtaining control of more '15-Day' Brent contracts than it knew could be delivered. Glencore, who was named as a co-conspirator, also bought a number of Brent cargoes to satisfy a tender to supply refiners in India.
PRICES: Traders calculated that the value of Europe's benchmark Dated Brent crude jumped by more than $3 from Aug. 21 to Sept. 5 as cargoes were bought.
FALLOUT: U.S. oil refiner Tosco filed a lawsuit against Arcadia for inflating the price of crude. Tosco claimed Arcadia, then a wholly owned subsidiary of Japan's Mitsui, was aided by Swiss-based trader Glencore and other unidentified conspirators to raise the price of Brent crude. The lawsuit was settled out of court. At the time, China's biggest crude oil importer Unipec suspended trade with Arcadia and Glencore.

TRADER: Sempra
MARKET: Dated Brent
PERIOD: Q1 2002
STRATEGY: U.S. energy trader Sempra snapped up almost an entire month's Brent crude oil program after carrying out a huge exchange-for-physical (EFP) trade, under which it swapped Brent futures for forward contracts that delivered oil. Most of the crude was shipped to China.
PRICES: Dated Brent spreads and premiums strengthened during the month.
FALLOUT: Sempra's was one of the last classic short squeezes in the North Sea Brent market before pricing agency Platts introduced additional types of crude into its benchmark methodology, making it all but impossible for a single trader to buy an entire month's worth of crude.

MARKET: Propane
PERIOD: Early 2004
STRATEGY: BP was alleged to have bought nearly all the propane in the Mont Belvieu storage fields in advance, then held onto it until the end of the month, when other companies who needed the gas on a northern pipeline would pay up for it.
PRICES: This is unclear, but some media reported that BP had ultimately lost money on the gambit.
FALLOUT: In 2007 BP agreed to pay $303 million in civil and criminal penalties for attempting to corner the U.S. propane market, the biggest CFTC fine in history. In return, the government agreed to end criminal probes related to propane, gasoline, crude and other commodity trade. BP also agreed to pay $52 million to settle a class action lawsuit brought by customers who said they paid inflated prices in April 2003 and the first half of 2004.
A separate criminal case against four BP traders, who had pleaded not guilty to mail fraud and conspiracy, was dismissed in 2009 because the trades had occurred on the over-the-counter market, not on a regulated exchange.

TRADER: Brian Hunter for Amaranth Advisors LLC
MARKET: U.S. Natural Gas
PERIOD: Aug-Sept. 2006
STRATEGY: Hunter bet on the March/April spread; that April prices would drop relative to March before storage had the chance to refill to meet summer cooling demand. He had made that bet in 2005 and won big because Hurricane Katrina had knocked some Gulf of Mexico supplies offline and the price of gas rose as high as $15.78 in December, the highest ever, as the market feared a supply shortage. The fund had natural gas futures positions valued at more than $5 billion in December 2005. By the time September 2006 rolled around, with no hurricanes, storage was at a healthy level and the spread began to move against him.
PRICES: Between Aug. 25, 2006 and Sept. 27, 2006, natural gas futures lost 41 percent of their value as Hunter unwound his positions.
FALLOUT: By the end of September 2006, the losses from the bad trades were estimated at $6.4 billion and the fund went out of business. The CFTC charged Amaranth with attempted market manipulation and focused on Hunter's ability to amass thousands of positions both on the NYMEX and in the electronic over-the-counter market on the InterContinental Exchange.

In 2009, Amaranth was ordered to pay a $7.5 million fine to the CFTC for attempted manipulation of natural gas prices. As a result of the incident, ICE in 2007 began reporting in more detail its weekly positions to the CFTC.

By January 2010, the CFTC began including some of the ICE data in its weekly Commitment of Traders reports. In April 2011 the U.S. Federal Energy Regulatory Commission ordered Hunter to pay a $30 million fine for manipulating energy markets prices....MORE