Statoil: Buying Propane to Lift the Price of Paper

The Statoil Argus propane benchmark manipulation settlement required a $4 million civil penalty over allegations that the company bought physical propane to push up a benchmark pricing its swaps. The Commodity Futures Trading Commission described a trading unit facing losses, customer cargoes it needed to buy, and a plan to make those purchases lift the value of its financial positions. If you work in propane trading, scheduling or risk, the connection is familiar: the cargo has a destination, and the price it helps set can have a second job.

Statoil ASA, an international energy company headquartered in Stavanger, Norway, participated in both physical and financial energy markets. The Commission’s November 14, 2017 settlement announcement describes its allegations of attempted manipulation from as early as October through November 2011. Its account belongs to the wider pattern of physical commodity trading aimed at linked derivatives: the incentive becomes clearer when the cargo purchases and the financial positions are read together.

How the Argus Far East Index Worked

The Argus Far East Index is a propane price benchmark used to price physical and financial positions, including U.S. futures and swaps. In the market described by the Commission’s order, Argus gathered bids, offers and transaction information from participants trading propane for the Far East. That information entered its daily price assessment through an open trading window.

The order describes a 30-minute window closing at 5:00 p.m. Singapore time. Transactions outside it did not enter the daily assessment. The timing therefore mattered twice: once for buying the propane, and again for making that purchase count toward the price used by other contracts.

According to the Commission, Statoil held over-the-counter swaps cleared through NYMEX that settled to the Argus Far East Index. A higher index would benefit those swaps as well as other physical and financial propane positions. A cargo purchase inside the window could supply an input to the same benchmark that determined the value of the paper already on the books.

Why Statoil Wanted a Higher November Price

The Commission said Statoil’s gas liquids unit had suffered major losses throughout the year and turned to its winter trading plan in an effort to become profitable. The company established positions that would benefit from a rising Argus Far East Index, expecting seasonal market forces to support that result. Those conditions failed to arrive, leaving the unit exposed to further substantial losses.

A trader’s message reproduced in the order described commitments to deliver 13.5 cargoes in December. The Commission’s account describes a plan to concentrate those purchases in the November price-setting window, remove supply from the market and signal strong demand. The hoped-for benefit extended to the positions priced against that month’s index.

According to the order, Statoil’s purchases stayed within the amount needed for its physical delivery obligations, although some traders considered buying more. The alleged strategy used customer business as the means to influence a benchmark. We see the problem in that overlap: the cargo was needed, but the traders’ own messages gave its timing another purpose.

Cargo Purchases as “Bullets”

The Commission’s order describes traders calling the November purchases “bullets” for achieving price movement. Their communications connected the planned buying directly to its expected effect on the Argus quote:

That message predicts what the proposed buying could do to the benchmark. The order then quotes a communication spelling out the expected benefit for the financial position:

The communication expected the higher price to increase the value of the paper position, which settled to the Argus Far East Index. In the Commission’s account, the buyer wanted its buying to make the product more expensive. We see the absurdity: a buyer rooting for a higher price. The paper position explains why.

Why the Attempt Fell Short

The Commission said Statoil’s plan to create an artificial settlement price did not work as hoped because more propane was available than its traders had anticipated. Other participants were willing to sell cargoes at discounted prices, and the additional supply frustrated the intended upward pressure. The order quotes a trader saying the company had bought five cargoes over the preceding week, without enough effect to keep the price up.

The Commission tied its attempted-manipulation finding to the traders’ communications and the purchases it said they planned and executed in the window. Its account describes an effort to influence the benchmark that fell short of the traders’ expectations.

That makes the communications especially useful to someone examining a similar concern. They explain what the desk wanted the purchases to accomplish before the market delivered its answer. A disappointing trading result can sit beside a very clear account of the intended benefit.

Propane Corners and Benchmark Trading

BP Products North America’s propane case concerned control of deliverable supply through the TEPPCO system. In its civil consent order, BP admitted manipulation and attempted manipulation through its employees. That case follows TET propane inventory, delivery and trading strategy. The Commission’s Statoil account follows Far East cargo purchases into a published price assessment.

The difference changes what an insider’s knowledge can explain. Supply and delivery records help describe a corner, while window purchases and linked positions help explain the alleged Statoil attempt.

TOTSA TotalEnergies Trading supplies the opposite price direction. The Commission alleged that it sold physical EBOB gasoline below buyers’ indicated offers to depress a benchmark and benefit short futures. Statoil allegedly sought a higher benchmark through purchases while TOTSA allegedly sought a lower one through sales. Both accounts connect the physical transaction to an incentive in the financial book.

What Evidence Is Required to Prove Fraud?

In this case, the Commission relied on trading conduct and contemporaneous communications to connect the propane purchases, the benchmark, the linked positions and the traders’ purpose. We assess those connections with insiders who can explain what the business was trying to accomplish.

The 2024 draft working paper An Analysis of Market Manipulation Definitions Around the World, prepared for a World Federation of Exchanges research project, describes cross-market strategies involving different instruments, counterparties and desks, with profits taken elsewhere. Its review also discusses the difficulty of detecting such conduct without whistleblowers. That is why a trading account becomes more informative when someone can connect it to the activity elsewhere in the business.

We examine how cargo schedules and customer commitments explain the window trades, and which swap positions stood to benefit from the benchmark those trades helped set. Trading instructions and messages can explain why the desk wanted that result.

A scheduler may understand the delivery commitments, a trader the window activity, and a derivatives controller the exposure to the index. We bring those views together when assessing a concern about commodity market manipulation. The useful account explains how the decisions fit together, including the part that seemed strange from inside the business.

What the CFTC Ordered

The Commodity Futures Trading Commission settled the action against Statoil ASA and imposed the civil penalty for attempted manipulation. It also ordered the company to stop manipulating or attempting to manipulate commodity prices.

For qualifying actions, CFTC whistleblower rewards total 10% to 30% of the monetary sanctions actually collected, shared among qualifying whistleblowers. We assess the significance of your information and bring in commodity-manipulation whistleblower lawyers who understand how the physical and financial records fit together.

You Know Why the Cargo Was Bought

If the explanation for a propane purchase changes when you look at the swaps book, talk with our whistleblower experts about the trading decisions you saw. We assess the trading strategy behind those records, bring in commodity-manipulation whistleblower lawyers and stay beside you through the case. Put your knowledge of the desk to work with experts who understand why a physical purchase can serve the swaps book.