Energy Speculations Spur Chinese Interest
Chinese Vice Premier Li called on the "global reserve currency issuers" at Davos to show greater accountability and discipline. Price manipulation in the commodity and futures markets is creating serious doubts in mind of the consumers worldwide and affecting the credibility of regulators. Surprisingly it is not Senators Levin and Feinstein, but China whose protests are now being heard.
A decade ago commodity trades were spiked by Europe’s back street boys from Swiss headquarters running up price rigging rackets in oil supplied from strife torn nations like Angola, Nigeria, Venezuela, Iran, Iraq, Yemen, and Sudan. Companies like Glencore, Trafigura, and Taurus Oil ruled the markets and fixed prices as oil and food moved through war zones and embargoes.
Though crimes were serious, the scales were smaller and unable to affect global commodity prices seriously. The first major offender in the commodity scam was the Enron Corporation, coincidentally an energy company. They used financial innovation and round-trip swaps in the futures markets and showed the next generation how to execute the unethical legally.
Insider trading was out. Round-trip trading was perfected to a fine art with the London Loophole, where commodity cartels formed by Europe's giant oil corporations and the big Wall Street Banks were in. Thousands of cross trading operations carried out each day jacked up prices globally with cartel members profiting from the upsurge of oil prices.
Manipulations in Brent Oil futures at ICE and NYMEX had a ripple effect on both the large OPEC oil market as well as on gas prices. The China Investment Corporation recently picked up a 3.4% stake worth USD 78.6 million in the Goldman Sachs and Morgan Stanley operated U.S. Oil Fund, an exchange-traded crude-futures fund, in a strategy move to learn the tricks of the trade to control markets.
Though President Obama did talk tough towards the big banks early this month, and the "Volcker report" touched on a few basic issues, the Western economies are still reluctant to impose a turnover tax on commodities. Unless a token ad valorem transaction tax is imposed and fictitious round-trip deals that are spiking oil and food prices are stopped, commodity prices will boom and an Enron repeat will be in the cards.