PETROANALYSIS || ARTICLE
Crude Oil Speculation: Cushing’s Inventory Manipulation II
As indicated before by the CFTC, Parnon/Arcadia intended to make a lot of money by manipulating the inventories at Cushing. Their strategy consisted in selling NYMEX WTI contracts, while making other traders believe that the market was tight. However, the end-of-month balance would be modified – unexpectedly – into a surprise surplus, leading to a lower WTI price. This would increase the profit on their short positions. To reinforce the idea of a tight market, Parnon/Arcadia also entered profitable long positions to drive up the price of WTI. As per the CFTC, these actions impacted the price of WTI in the February-June 2008 period.
We now turn to the discussion of the alleged market manipulation, beyond the lawsuit based on the Commodity Exchange Act. The argument by the CFTC starts by stating that the supply of crude oil at Cushing, including WTI was relatively low and this ‘fact’ was reflected on WTI prices. It was further alleged that Parnon/Arcadia based their ‘devious’ strategy on this, to take advantage of and exacerbate such tightness. However, a careful review of EIA’s crude oil inventories at Cushing indicates that the value of these stocks relative to one, two, and three months averages was not ‘relatively low’, but within the values in the preceding five years, as shown in the dashed circle. This evidence weakens the CCTC’s claim.
On the other hand, an inspection of the stocks and WTI spot price relative to one, two, and three months averages does not show a consistent inverse relationship.
This link is clearly expected, to sustain the argument that the attempted changes in stocks by Parnon/Arcadia led to changes in the WTI spot price. The relationships presented suggest that the CFTC claims were not consistent.
CFTC, 2011, Civil Action, Complaint for Civil Monetary Penalties Under the Commodity Exchange Act, against Parnon Energy Inc.,