Oil climate ripe for manipulation - US regulator

23 June 2008 18:33  [Source: ICIS news]

HOUSTON (ICIS news)--The unprecedented trading climate for crude oil has created prime conditions for market manipulation, the US Commodity Futures Trading Commission (CFTC) acknowledged on Monday.

But in testimony before a Congressional panel, the CFTC's chairman again stopped short of making any explicit link between legal speculation in futures markets and high and volatile energy prices, as the US chemical industry and world political leaders have charged.

"During these turbulent market conditions for crude oil, the environment is ripe for those wanting to illegally manipulate the markets," CFTC chairman Walter Lukken said.

The regulators' response has been to step up its already aggressive enforcement presence, Lukken said, citing the CFTC's unusual disclosure in May that a nationwide investigation into physical and financial trading of crude oil has been under way since December.

Since December 2002, the CFTC has undertaken 39 enforcement actions involving the energy markets that have reaped nearly $500m (€320m) in penalty payments.

"Strong enforcement is imperative during this time," Lukken told the House Committee on Energy and Commerce.

But the regulator's ability to monitor markets was constrained by a lack of resources at the $157m/year agency, Lukken said.

In the 33 years since the CFTC was formed, the volume on futures exchanges has grown 8,000% while the regulator's staffing has fallen 12%, he said.  

In May, the CFTC said its studies had shown speculators in energy markets tended to follow price swings rather than cause them.

That contradicted a widely held complaint that hedge funds and other speculators were the root cause of volatility, a view that leading oil exporter Saudi Arabia used over the weekend to deflect blame for high prices.

($1 = €0.64)

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