Yesterday the U.S. Attorney General announced the formation of an Oil and Gas Price
Fraud Working Group, a state and federal interagency organization
that will address oil and gas market "collusion, fraud, or
misrepresentation" and speculation and trading practices that
may have increased fuel prices. This effort only duplicates
existing efforts by multiple government agencies, none of which has
found any significant evidence of anticompetitive conduct leading
to higher prices, but may signal more aggressive enforcement of
existing laws.
New working group
This new working group will be part of the government's
Financial Fraud Enforcement Task Force and will include
representatives from the Departments of Justice, Energy, Treasury,
and Agriculture, the Federal Trade Commission, the Federal Reserve
System Board of Governors, the Commodity Futures Trading
Commission, the Securities and Exchange Commission, and the
National Association of Attorneys General. The Attorney
General stated that the working group should "share
information and foster collaboration" as the various agencies
use their existing authority to:
- Explore whether there is any evidence of manipulation of oil and gas prices, collusion, fraud, or misrepresentations at the retail or wholesale levels that would violate state or federal laws and that has harmed consumers...
- Evaluate developments in commodities markets including an examination of investor practices, supply and demand factors, and the role of speculators and index traders in oil futures markets.
Crude prices this week reached beyond $110 per barrel, and
average gasoline prices at the pump are above $3.80. The
government understandably wants to do something about high
prices. Nevertheless, even with the broad authority to
investigate and challenge illegitimate conduct, government agencies
have uncovered little in the way of unlawful conduct to explain
price spikes that have occurred in recent years.
Existing government authority to investigate high fuel prices
The Federal Trade Commission and Department of Justice closely
watch energy markets for possible antitrust
violations. The FTC has a gasoline price monitoring
program and has investigated price spikes nationally and
in the West, Pacific Northwest, Midwest, Cape Cod, and elsewhere,
but found that supply and demand generally explain the
fluctuations. Refinery constraints and demand for boutique
fuels required by government regulation sometimes have contributed,
but not collusion among suppliers. Likewise, the DOJ has
found few opportunities to prosecute gasoline retailers for
price fixing.
Similarly, the FTC has made retrospective studies of
mergers in oil sectors, but not found evidence
they have caused significant price increases. As FTC
officials have observed, the agency aggressively pursues
combinations involving crude oil and refined products commodities
and has brought merger cases at lower levels of concentration in
the petroleum industry than in any other.
The FTC in 2009 issued regulations to enforce new authority given
to it by Congress to challenge wholesale gasoline fraud and
market manipulation, including making knowingly fraudulent
statements or omissions that, although true, mislead market
participants and distort or are likely to distort market
conditions. No investigation or enforcement action has been
announced. This rule is similar to the false reporting and
anti-manipulation rules of the Commodity Exchange Act, enforced by
the CFTC.
The CFTC also polices oil market activities and has actively
monitored those markets in recent years for signs of market
manipulation. In 2008, during another period of high gasoline
prices, in a rare public statement about an ongoing investigation,
the CFTC publicly disclosed its then six-month-old "National
Crude Oil Investigation." The CFTC undertook a large
scale review of oil marketing and trading activities to identify
any irregularities that might imply conduct violating the
anti-manipulation rules. The CFTC has identified one
enforcement action resulting from this investigation.
In addition, the laws of some three dozen states address
"price gouging" in sales of petroleum
products and other commodities during states of emergency, most
applying a standard prohibiting "unconscionably excessive
prices" or the like. In the last few years,
investigation of price gouging has increased, especially during
hurricane season and considerably after Hurricanes Katrina and
Ike. Nevertheless, state attorneys general have brought few
enforcement actions, especially with less hurricane activity and
generally lower market prices during the last couple of
years.
Conclusion
This new working group should not make a significant addition to the government's already-busy oil industry agenda. The agencies involved already have broad authority to address anticompetitive conduct or other activity that may contribute to higher fuel prices. But the fact is that prior investigations have not found much to support the implication that collusion, fraud, misrepresentation, or speculation are to blame. The OPEC cartel is an exception, of course, and beyond the reach of U.S. courts. OPEC output limitations, increased petroleum demand in developing countries, Middle East unrest, a weak dollar, and other factors affecting global crude markets are more likely factors. Nevertheless, the announcement of this working group is a reminder to energy companies that there will be closer government scrutiny during this period of high prices.
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