From his $4.4 million estate behind the gates of Fairbanks Ranch, Nicholas J. Wildgoose couldn’t see the traffic streaming along I-5, one of America’s busiest freeways. But in 2008, the oil trader and his web of international associates had to know driver anxiety, and soon anger would rise over skyrocketing gas prices as the team launched one of the nation’s most audacious crude oil speculation schemes in years.
From January through April that year, federal officials allege, the trading group illegally manipulated crude oil prices on the New York Mercantile Exchange and then made trading moves to net at least $50 million.
On May 24, 2011, in federal court in New York, the U.S. Commodity Futures Trading Commission, an independent agency created by Congress, sued the group.
The civil enforcement complaint names Wildgoose; James T. Dyer, an internationally famous oil trader who lives in Australia; and three firms controlled by John “Big Wolf” Fredriksen, who owns the world’s largest oil tanker fleet and is Norway’s richest man. The suit seeks disgorgement of the $50 million, damages triple that amount, and trading prohibitions.
“Defendants conducted a manipulative cycle, driving the [oil] price to artificial highs then back down again to make unlawful profits,” says the suit.
During the first of their two successful attempts to yo-yo prices, the lawsuit alleges, the team surreptitiously purchased 66 percent of the estimated crude oil available at the country’s primary depot, in Cushing, Oklahoma. The government says the team had no commercial need for the oil.
In an exercise that Wildgoose referred to in an email as the “inevitable puking” of the oil, the team rapidly sold off about 4.6 million barrels, the suit says, catching by complete surprise the nation’s commodity market. The trading move “had the desired effect,” Wildgoose noted in another email. The team earned big profits on derivatives on the future price of oil.
In the aftermath of the team’s maneuvers, there was widespread vomiting nationwide as speculative maneuvers drove crude oil in July to $147 a barrel, thereby producing near-record-high gasoline prices.
As Dyer had predicted in a 2007 email, there is “a shitload of money to be made” in crude oil speculation.
From a small office tucked behind the Ranch Market and Deli in Fairbanks Ranch, Wildgoose worked for Parnon Energy Inc., one of the companies named in the commission’s lawsuit. The other two companies are Arcadia Petroleum Limited in London and Arcadia Energy (Suisse) SA in Switzerland.
Via electronic tentacles, the players set their trading sights in 2008 on the depot at Cushing because the West Texas Intermediate crude oil delivered and stored there is used as the benchmark for worldwide pricing. Their trading scheme worked in January and March, federal officials say, but not in February, when they couldn’t secure sufficient credit. In April, they were attempting a third move when the Commodity Futures Trading Commission inquired about unusual trading activities. The traders then stopped.
Wildgoose declined to speak despite repeated requests by fax and from outside his office, where only a small black hound barked from the patio. The firms’ Chicago attorney, Timothy Carey, didn’t respond to interview requests. Parnon Energy issued a statement on its website that said the defendants are “disappointed” by the commission’s lawsuit, adding, “The complaint is completely without merit. Our crude oil trading activity was lawful and appropriate. We look forward to proving this in court.”
In an interview with a major Norwegian newspaper, Fredriksen — who lives primarily in London and operates out of Cyprus — offered a provocative rationale: the commission’s lawsuit was President Obama’s revenge for the BP oil spill in the Gulf of Mexico last year.
Actually, the case is at the center of a political and economic battle in Washington, DC, on how to apply new regulations to the oil market and other crucial commodities. A number of authorities say oil speculation is out of control, harming the U.S. economy.
The lawsuit provides a seldom-seen view of how oil/gas speculation occurs.
“These guys helped drive up the price of gasoline in 2008,” says Bob van der Valk, a petroleum analyst in Montana.
Commodity trading allows companies — from transportation industries to food makers — to hedge their bets when they enter long-term supply contracts. But more and more evidence indicates that trading in crude oil has turned the marketplace into a casino without watchdogs for sleights of hand.
Before 1980, about 70 percent of the speculation in the oil markets was by fuel users hedging to protect against higher prices; now about 70 percent is by traders who have no use for the oil save speculation, say accounts published by McClatchy Newspapers.
Just two weeks before the commission’s lawsuit, 17 senators called on the commission to take immediate action against speculation under a law enacted last year. That measure, the Dodd-Frank Wall Street Reform and Consumer Protection Act, requires the commission to set limits on energy trading.
“American consumers are getting gouged at the pump while speculation on Wall Street runs rampant,” said Senator Maria Cantwell, a Democrat from Washington, in a press release. Only one Republican signed the letter, Maine’s Susan Collins, whose constituents are furious over the impact of high gas prices.
A Goldman Sachs report estimates that for every million barrels of oil held by speculators, the price of a barrel goes up 8 to 10 cents. As of May 3, speculators held contracts controlling 258 million barrels of oil.
Even Opec cartel members, like the Saudi Arabians, now say high fuel prices are due more to speculation than supply and demand. Disagreements over balancing speculation pressures and refinery production schedules were so intense that Opec itself couldn’t agree on new oil production quotas at its Vienna meeting that ended June 8.
The current speculative climate in crude oil was made possible by regulatory and federal law changes during the presidencies of Ronald Reagan and Bill Clinton. Those changes made oil derivatives a hot play.
With President George Bush in the White House, the oil market gamers began to have a field day. But trading irregularities under Bush became so blatant that the Commodity Futures Trading Commission had to step in.