U.S. oil probe focusing on price manipulation: report

NEW YORK Fri May 30, 2008 2:20pm EDT

An oil rig is silhouetted against the sunset in St. Lawrence, Texas May 9, 2008. REUTERS/Jessica Rinaldi

An oil rig is silhouetted against the sunset in St. Lawrence, Texas May 9, 2008.

Credit: Reuters/Jessica Rinaldi

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NEW YORK (Reuters) - A U.S. regulatory probe into potential oil-market trading abuses is focusing on possible short-term manipulation of benchmark crude prices and the use of information related to important oil storage tanks to influence prices, the Wall Street Journal reported on Friday.

The newspaper, citing people familiar with enforcement priorities of the Commodity Futures Trading Commission, said the CFTC is pursuing several oil investigations, and that many of them relate to one another.

On Thursday the U.S. futures market regulator had said it would step up surveillance of energy trading by tracking index funds, and had reached an agreement with the U.K.'s Financial Services Authority and ICE Futures Europe to share information on energy contracts.

The CFTC has been under pressure from U.S. lawmakers to crack down on speculators they blame for pushing energy prices to record levels.

U.S. crude oil CLc1 hit a record high of $135.09 a barrel last week, and is up by more than 40 percent this year.

The Journal quoted CFTC enforcement chief Gregory Mocek as saying the agency has about 60 manipulation investigations open in various commodity markets.

The CFTC has expanded an investigation, disclosed previously by the newspaper, into alleged short-term manipulation of crude-oil prices via a widely used price-reporting system run by Platts, a unit of McGraw-Hill Cos MHP.N.

One suspicion, the newspaper said, is that energy companies and traders have at times issued a flood of orders during a time window used by Platts to determine its reported prices for physical oil transactions, then used the potentially distorted prices to make profits in other markets.

According to the Journal, Platts has said its system has safeguards to protect against manipulation. Subpoenas on the matter have gone out in several stages, the report cited people familiar with the cases as saying.

The Journal cited people familiar with the matter as saying the agency has also been questioning traders about similar activity in the jet-fuel market.

Another area of concern for CFTC regulators is whether the owners of crude-oil storage tanks use their knowledge to make bets on oil-futures markets.

In theory, the owner of a tank could issue misleading information about the tanks being full or empty, leaving the wrong impression about whether oil is in plentiful supply. Then they could make trades to profit on the misunderstanding.

(Reporting by Steve James; Editing by Jonathan Leff and Michael Urquhart)

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