Feds Investigate Natural Gas Price-Fixing Allegations

Feb 16th, 2013 | By fjgallagher | Category: Lead ArticlesRegulation


Federal regulators are investigating irregular price swings in the natural gas markets, according to a story published in the Wall Street Journal recently. Image credit: www.123rf.com

Federal regulators are looking into volatile price swings in the natural gas commodities market that occurred during the past 12 months in connection with the release of weekly natural gas inventory information, according to an articlepublished in The Wall Street Journal this morning.

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Investigators at the federal Commodity Futures Trading Commission, which regulates the Wall Street commodities trading, detected “suspicious trading strategies around the reports by the U.S. Energy Information Administration,” the WSJ story reported.

The EIA issues regular weekly reports on the country’s energy inventory, including a report that details the amount of natural gas that is held in storage. The EIA report is viewed as the most accurate gauge of short-term supply and demand.

CFTC investigators believe that commodities traders armed with equipment that lets them execute transactions at extraordinarily high speeds use the capability to create artificial price swings by flooding the market with transactions in the moments before the EIA report is released.

From The Wall Street Journal story:

The CFTC has found that a large proportion of trading volume around the data is being conducted by high-frequency firms, according to people familiar with the matter. One person said that many commercial traders, a category that includes energy producers and consumers, typically avoid trading immediately before and after the data to avoid the swings.

The EIA publishes a report at 10:30 a.m. EST each week, almost always on Thursdays, that provides an update on the amount of natural gas added or removed from U.S. stockpiles. The figure is widely considered the best gauge of gas supply and demand in the U.S., and typically results in the week’s busiest trading window.

Traders have pointed to unusual trading patterns as recently as last week. In the minute before the EIA report was released on Feb. 7, volume in natural-gas futures traded on the New York Mercantile Exchange spiked to 1,954 contracts after trading well below 1,000 contracts for the majority of the morning.