FTC cracks down on oil market manipulation

WASHINGTON (Reuters) - The U.S. Federal Trade Commission said on Thursday it plans to fine oil traders $1 million a day for manipulating energy markets with false pricing and misleading data, saying such conduct causes wide-ranging damage to the U.S. economy.

The agency said its, rule which takes effect November 4, aims to prohibit fraud or deceit in the both the cash energy markets and on regulated futures exchanges.

"This new rule will allow us to crack down on fraud and manipulation that can drive up prices at the pump," said FTC Chairman Jon Leibowitz. "We will police the oil markets -- and if we find companies that are manipulating the markets, we will go after them."

The announcements comes as the Obama Administration moves on other fronts to contain speculation in commodity trading, a sharp contrast to President George W. Bush's team that was perceived as friendly to Big Oil.

Congress has also pushed tougher oversight of oil trading after crude soared to a record $147 a barrel last summer. After falling sharply early this year, oil has whipsawed higher to above $70 now.

The American Petroleum Institute slammed the rule, saying oil companies would see fines jump from $11,000 to $1 million.

"We are concerned the new rule could lead to a less competitive market that would ultimately not be in the best interests of American consumers of gasoline, diesel and other petroleum products," the API said.

Violations include making false announcements of pricing or petroleum output, false data, and so-called "wash sales" where it appears there has been a sale or purchase even though no ownership change has taken place.

The FTC said the price of energy significantly affects the daily lives of American consumers and businesses. "Because fraudulent or deceptive conduct within wholesale petroleum markets injects false information into the market process, it distorts market data and thus undermines the ability of consumers and businesses to make purchase and sales decisions congruent with their economic objectives," the agency said.

Patricia Galvan, deputy assistant director of the FTC's bureau of competition, emphasized that the agency would go after wrongdoers in the wholesale market and not at the retail level.

For example, she said the FTC would not pursue charges against a retail service station owner that raised gasoline prices after a hurricane. However, she said the agency could fine the company selling the gasoline to the service station if the company claimed it boosted prices because of low fuel inventories when it actually had plenty of supplies on hand.

In addition to looking for fraudulent activity in the cash market, Galvan said the agency would "coordinate" with the Commodity Futures Trading Commission on market manipulation in the regulated futures markets.

However, she said the FTC would not rule out acting alone in charging traders in the futures markets with manipulation if the CFTC decided not to pursue possible wrongdoing.

Market sources have said U.S. cash products traders often attempt to influence price indexes, like the Platts oil benchmark, by using multiple low-volume trades in order to get favorable terms on larger supply deals benchmarked to those indexes.

But one cash crude trader said he thought the FTC ruling was "long overdue" and in cash crude markets FTC could take aim at price manipulation among buyers, sellers and brokers who trade cash crude grades.

The trader said players who are normally sellers of a particular cash grade sometimes present themselves as buyers to manipulate prices, and he likened the practice to auction manipulation.

The final rule can be found on the FTC's Web site at: http://www.ftc.gov/os/2009/08/P082900mmr_finalrule.pdf.

(Additional reporting by Janet McGurty in Toronto; Ayesha Rascoe in Washington, Robert Gibbons in New York; Editing by Russell Blinch and Marguerita Choy)