Norwegian operator Statoil has been ordered to pay a $4million fine over attempts to manipulate a propane benchmark.
The US Commodity Futures Trading Commission (CFTC) found that from as early as October 2011 through November 2011, the firm attempted to manipulate the Argus Far East Index (FEI) in order to benefit its physical and financial positions.
This included Statoil’s NYMEX-cleared over-the-counter swaps which settled to the Argus FEI.
The Argus FEI is an index of propane prices in the Far East region published by Argus, an independent organization that issues price assessments for global propane regions.
In order to set the Argus FEI, Argus collects information from market participants during the Argus daily open window assessment period -the Argus window.
The information collected includes, but is not limited to, information concerning market participants’ bids, offers, and transactions in propane for the Far East.
The Argus FEI is used for US futures contract and swap pricing in the propane industry, and several futures contracts traded on US commodity exchanges settle against the Argus FEI.
James McDonald, the CFTC’s Director of Enforcement said: “Manipulation in our markets impedes free and fair competition and dampens economic growth.
“As this case shows, we will work tirelessly to root out manipulation in our markets wherever it occurs, to ensure participants in our markets have confidence they are competing on a level playing field.”
According to the CFTC, Statoil had sustained major losses in its gas liquids unit throughout 2011.
After incurring those losses and in anticipation of seasonal market forces, Statoil established physical and financial positions, including NYMEX-cleared swaps – which, once cleared, converted to a futures position- that would benefit from a rising Argus FEI.
According to the CTFC, however, the expected market conditions that could increase the Argus FEI did not materialize which created the risk of additional substantial losses for Statoil.
An investigation in the US found that to avoid these losses and meet customer obligations, efforts were made by Statoil to prop up the Argus FEI by purchasing propane cargoes during the November Argus FEI propane price-setting window.
By purchasing cargoes in the Argus window, Statoil was hoping to signal that demand was high and put “upwards pressure” on the November Argus FEI propane price, the CFTC said in a statement.
Statoil’s intent to manipulate the Argus FEI was described repeatedly in contemporaneous communications.
In one communication, a Statoil trader wrote: “If we are buying 17 cargoes there are only a few days when we will not be able to have a good impact on the Argus quote… We are actually likely to move it quite a bit up as we keep buying…”
According to the CFTC, these propane cargo purchases in the November Argus window were characterized by Statoil as “bullets” for achieving price movement in order to benefit its financial and physical propane positions in the Far East tied to the Argus FEI, which included its NYMEX-cleared swaps:
However, Statoil’s plan to profit by creating an artificial settlement price for Statoil’s financial and physical propane positions did not materialize as hoped.
As one Statoil trader noted, Statoil’s purchases of propane cargoes in the Argus window “[have] not been enough to keep the [price] up.”
Statoil was found to have specifically intended to manipulate the Argus FEI in order to benefit, among other things, the firm’s NYMEX-cleared over-the-counter swaps that were directly priced to the Argus FEI.
It was further found that Statoil, among other things, planned and executed physical propane purchases in the Far East market during the November Argus window, in order to place upwards pressure on the November Argus FEI and, consequently, the value of its NYMEX-cleared swaps.
A Statoil spokesperson said the company had “worked cooperatively” with the CFTC to resolve the matter.
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