Oil disclosures and opacity create opportunities for market manipulation

This week the US Commodity Futures Trading Commission levied a $48 million penalty against TotalEnergies Trading for attempting to manipulate EBOB-linked futures contracts underscores the persistent threat of benchmark manipulation in energy markets. Simultaneously, a series of lawsuits, including one filed by the city of Baltimore, accuse major US shale oil producers of conspiring to lower production and boost petroleum product prices, potentially violating antitrust laws.

These cases reveal the cost of rising complexity in the divide between physical oil markets and their financial derivatives. The lag between real asset movements and financial asset pricing creates opportunities for sophisticated actors to exploit market inefficiencies. TOTSA's alleged strategy of selling physical EBOB at artificially low prices to benefit from short futures positions exemplifies how companies can leverage their position in physical markets to influence financially settled benchmarks. This disconnect between physical and financial markets is exacerbated by the increasing financialization of commodities, where paper trades often dwarf physical volumes.

The opacity of oil markets further complicates efforts to detect and prevent manipulation. With allegations of collusion between US producers and OPEC officials, and the FTC's findings regarding Pioneer Natural Resources' CEO's communications, there's growing concern about the lack of transparency in industry practices. This "data darkness” means that important market drivers are increasingly felt but not seen.

 As oil markets become more complex, with intricate global supply chains and a proliferation of financial instruments, the opportunities for market manipulation multiply, challenging regulators to keep pace with evolving tactics in an increasingly opaque paper market.