Before Americans are subjected to more election-year caterwauling over high gasoline prices, several truths about the price of oil need to be considered – few of them acknowledged so far by the deep thinkers in Washington, whether Democrat or Republican.
A little-known fact: When oil prices hit $100 a barrel for the first time during the last changing of the presidential guard in 2008, it was the result of price-meddling.
That's right. In the trading pits of the New York Mercantile Exchange, the world's dominant oil market, phone transcripts showed that the trader who pushed the price to its historic high started the day telling his colleagues he was going to be a "madman" and, after concluding the $100 trade – which ran counter to the session's other price movements – he ended the day bragging, "We weren't gonna' let that one get away from us…some people collect art prints; we collect price prints."
How do we know all this? The "non-bona fide trade" was quietly reported by our government almost three years after the fact. Oil is processed by refineries to make gasoline, so when oil prices go up, gas prices go up too. Why did the government use such awkward Latinate language in describing the trade as a "non-bona fide" transaction? Because, even as gas prices topped $4 a gallon around the same time, it feared the backlash of calling the oil trade a "manipulation." We all know the rest of the story. From then on, $100 oil would be so common as to become cliché.
In Washington, the watchdog agency that's responsible for policing the energy market, the Commodity Futures Trading Commission, has become more known for dragging its feet. It did not charge the offending trader's employer, ConAgra Trade Group (later sold to the Ospraie Special Opportunities fund and other investors) until late 2010. ConAgra paid a civil monetary penalty of $12 million. The trader walked. The CFTC has never explained why it did not name the trader publicly.
So what about oil's latest leap to over $100? That was the result of another market game, albeit a legal one. ConocoPhillips (COP) made billions last year when it allowed allow oil barrels to enter – but not exit – the nation's key oil hub of Cushing, Oklahoma, through its portion of the Seaway Pipeline. As oil supplies soared to record levels, the price of oil was pressured far below levels seen elsewhere in the world.
