Release Number 5193-06
For Release: June 28, 2006
U.S. Commodity Futures Trading Commission Charges BP Products North America, Inc. with Cornering the Propane Market and Manipulating the Price of Propane
Complaint Alleges that BP’s Actions Resulted in Higher Prices for Residential and Commercial Consumers of Propane
Washington, D.C.— The U.S. Commodity Futures Trading Commission (CFTC) announced today the filing of a civil enforcement action in the United States District Court for the Northern District of Illinois against BP Products North America, Inc. (BP), a wholly owned subsidiary of BP plc, alleging that BP manipulated the price of February 2004 TET physical propane by, among other things, cornering the market for February 2004 TET physical propane. The CFTC also charges BP with attempting to manipulate the price of April 2003 TET physical propane by attempting to corner the April 2003 TET physical propane market.
The CFTC’s complaint alleges that:
- With the knowledge, advice, and consent of senior management, BP employees developed and executed a speculative trading strategy in which BP cornered the February 2004 TET physical propane market;
- In developing this strategy, BP employees discussed BP’s ability to “control the market at will” by cornering the market in TET propane;
- According to internal BP documents, BP’s traders would establish a long February propane position, withhold a portion of that propane from the market, and drive up the price of propane;
- By cornering the TET propane market, BP employees sought to generate a profit for BP of at least $20 million “with potential for upside from there”; and
- BP’s scheme to corner the market caused the price of TET propane to become artificially high.
“Cornering a commodity market is more than a threat to market integrity. It is an illegal activity that could have repercussions for commercial market participants as well as retail consumers around this country. This case clearly illustrates that complex and covert trading patterns will not prevent us from aggressively pursuing and exposing those that violate the Commodity Exchange Act,” said Gregory Mocek, the CFTC’s Director of Enforcement.
According to the complaint, in order to accomplish the corner during February 2004, BP employees purchased enormous quantities of propane to establish a dominant and controlling long position in February 2004 TET physical propane. The complaint further alleges that as a result of BP’s strategy, as of February 17, 2004, BP’s position in February 2004 TET physical propane exceeded the entire TEPPCO system propane inventory; and at the end of February 2004, BP owned over 88% of all TET propane.
Because BP possessed a dominant and controlling position in February 2004 TET propane, the complaint alleges, BP was able to dictate prices at which BP would sell the February 2004 TET propane to the shorts on at least February 27, 2004. According to the complaint, BP’s actions caused the price of February 2004 TET propane to increase to over 90 cents per gallon on February 27, 2004—a price that would not otherwise have been reached under the normal pressures of supply and demand. As alleged in the complaint, during the winter months, including February, TET propane is purchased by retail consumers, typically those in more rural regions, to heat their homes.
The CFTC complaint further alleges that February 2004 was not the first time that BP engaged in an effort to corner the TET physical propane market. BP, by and through its employees, attempted to manipulate the price of April 2003 TET physical propane through a similar strategy of taking a dominant and controlling long position, the complaint alleges. The complaint also alleges that a BP employee described the April 2003 TET propane trading strategy as a “trial run” of the February 2004 TET strategy to corner the propane market.
According to the lawsuit, “TET” propane is the primary propane used for residential and commercial heating in the Northeast United States, particularly in rural areas which are not served by natural gas pipelines; and, the price of TET propane at Mont Belvieu affects the price of propane paid by consumers. The term “TET propane” refers to propane that is deliverable at the TEPPCO storage facility in Mont Belvieu, Texas, or anywhere within the TEPPCO system. “TEPPCO” is an acronym for Texas Eastern Products Pipeline Co, LLC. Furthermore, prices of TET propane affect the price of the NYMEX futures contract for propane, in part, because the NYMEX propane contract provides for delivery of propane at TEPPCO, according to the complaint.
In its ongoing litigation, the CFTC is seeking permanent injunctive relief, disgorgement, restitution, and payment of civil monetary penalties.
The Commission appreciates the cooperative enforcement efforts of the President’s Corporate Fraud Task Force and Criminal Fraud Section of the Department of Justice.
The following CFTC Division of Enforcement staff members are primarily responsible for this case: Joseph Konizeski, Joan Manley, Paul Hayeck, Judy Lee, and Christine Ryall.
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The CFTC encourages members of the public to bring to our attention any suspicious activities involving futures or commodity options, including matters involving foreign currency (forex) investments or suspicious Internet websites.
In addition, the CFTC publishes a series of Consumer Advisories alerting the public to warning signs of possible fraudulent activity and offering precautions individuals should take before committing funds..