Fed’s Investigation of Oil Futures Markets Revealed

I have suspected for a while that the price of oil is being artificially inflated by hedge fund managers and others.  I had no proof so I haven’t blogged about it.  However it seems the Feds think there is something amiss with the oil futures  markets.   I believe that the hedge funds and other money mangers which control vast amounts of institutional i.e. union pension funds, and endowment wealth have used oil to make up for their losses in the subprime market.  

Federal regulators are six months into a wide-ranging investigation of U.S. oil markets, with a focus on possible price manipulation.

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The Commodity Futures Trading Commission on Thursday said it started the probe in December and took the unusual step of publicizing it “because of today’s unprecedented market conditions.”

Crude prices, which on Thursday hovered around $127 a barrel, have risen more than 42 percent since early December. Gasoline prices are nearing a national average of $4 a gallon, up from about $3.20 a year ago.

The commission said details of the investigation remain confidential, but announced a handful of other initiatives designed to increase transparency of U.S. and international energy futures markets.

For example, the CFTC said it will immediately require monthly reports from institutional investors who manage funds designed to mimic the price of crude oil and other energy futures. The goal, the agency said, is to identify the amount of such index trading and to “ensure that this type of trading activity is not adversely impacting the price discovery process.”

The CFTC also said it has reached an agreement with its British counterpart and InterContinental Exchange Inc.’s Futures Europe to expand surveillance of energy futures contracts with U.S. delivery points, including the benchmark West Texas Intermediate crude, which trades on the New York Mercantile Exchange.

A Senate subcommittee investigation last year found that hedge fund Amaranth Advisors LLC, which collapsed in 2006 after losing more than $6 billion in natural-gas trades, had shifted its activities to ICE from the regulated Nymex to avoid trading limits, and that the “excessive speculation” raised homeowners’ heating bills.

Speculation has been cited as one on many factors contributing to surging petroleum prices, along with assumptions about new supplies, limited demand growth, possible supply disruptions overseas and the dollar’s depressed value against other currencies.

Hopefully this action will help to stabilize prices.  Even OPEC said they can’t figure out why oil isn’t 60-70 per barrel because based on supply and demand that is where it should be.  

Another completely unsubstantiated hunch, Soros has something to do with it.  I thought he did during the spike of 2004 and think so now.  

About Rob "EaBo Clipper" Eno