Thursday, March 22, 2007

Manipulating Stock Prices and Oil Prices: It's in the Air

03.22.2007

Raymond J. Learsy

In a revealing lapse, given his turbo charged cadence, CNBC's host Jim Cramer bragged about manipulating stocks. And then Cramer, no dummy he, added that the strategy -- while illegal -- "the Security and Exchange Commission never understands this," according to the New York Post.

Coincidently just a few days before, this writer appeared on a March 14 CNBC segment "Can We Trust OPEC".

My sparring partner , Jerry Taylor, a CATO Institute senior fellow opined that OPEC was merely a grouping of oil producers who played no significant role in oil pricing, "Prices are established by global supply and demand", he went on "OPEC ...has a minority control over global supply. It influences prices, perhaps, but it certainly can't establish prices. All they can effect is how much member states produce".

Liz Claman, hosting the segment for CNBC, pointed to the trading floor pictured in full action behind her, and rightly asked, isn't this where the market price is determined?

Demurring I pointed out that who is to say that the trading in oil futures isn't doctored as well. Taylor interjected that there is no way that the market could be manipulated. Trades are realized in markets all over the world, and the volume is massive. Further there was no academic evidence of such activity.

I countered that not only were OPEC supply constraints largely responsible for the 300-400% crude oil price increases over the last half dozen years but that BP was already under investigation by the CFTC for manipulating oil futures trading. That even though the trading in oil futures was massive, OPEC had the resources at its disposal that could readily permit it to deliberately influence price actions on the trading floor or the electronic ether. Time ran out and never was able to opine that it was not only within OPEC's capability, the very fact that it was a huge and diverse world market lent itself to opaque trading with minimal oversight. In consequence the possibility of manipulation by those with the means and interest becomes totally feasible (An Energy Agenda For a Newly Energized Congress, Part IV: Need For Urgent Congressional Oversight of Oil/Gas Futures Trading).12.11.06

Jim Cramer in admitting to doing what he did rendered an important service. He brought a human dimension to the reality of how readily markets can be manipulated. Multiply Jim Cramers' capabilities by the resources and world wide connections of OPEC and you begin to picture the possibilities. For a Jerry Taylor to dismiss it out of hand is, to my mind, nonsense. For a Liz Clayman to interject the question she did is exactly as it should be. At least at CNBC there is no slavish piety that it is always the invisible hand of market forces that bring us the price of goods and commodities.


Raymond J. Learsy is the author of the book Over a Barrel: Breaking the Middle East Oil Cartel. A graduate of the Wharton School, he made his life in the fast-paced, risk-filled world of commodities trading, beginning in 1959. In 1963, he started his own firm and over twenty years expanded from the U.S. into Canada, the United Kingdom, Luxembourg, Brazil, and Pakistan, trading in an array of bulk raw materials and commodities, shipping to customers worldwide. In the 1980s, he shifted gears as a private investor, from 1982 to 1988, served as a Reagan appointee to the National Endowment for the Arts. Currently, he is a member of the Woodrow Wilson International Center for Scholars. Learsy's richly-informed analysis of the international oil trade, OPEC, and its impact on the American and world economy has been featured in the National Review Online and the New York Times. He currently resides in Connecticut, and can be reached at triduane@aol.com.

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