Senators call for investigation of CFTC report

WASHINGTON Fri Aug 15, 2008 12:18pm EDT

WASHINGTON Aug 15 (Reuters) - Several U.S. lawmakers urged the Inspector General of the Commodity Futures Trading Commission this week to investigate a study released by the futures market regulator that concluded speculators are not to blame for high oil prices.

Four Democratic Senators sent a letter to Inspector General Roy Lavik on Thursday questioning the CFTC's role in an interagency task force interim report that said "supply and demand factors" were responsible for the surge in fuel prices.

In particular, the lawmakers called the interim report's timing "suspicious." The report was released in July just a few days before the Senate voted on a bill aimed at reining in excessive speculation in futures markets.

"The report, which specifically addressed speculation, appears to have been created and released to influence that Senate vote, which would be highly improper in our view," the lawmakers said in the letter.

The senators -- Maria Cantwell of Washington, Byron Dorgan of North Dakota, Bill Nelson of Florida and Ron Wyden of Oregon -- also said the data used for the report may not be accurate.

Shortly before the study was unveiled, the commission reclassified some trading positions it had previously reported as commercial hedging positions as noncommercial speculative positions.

Under this major revision, the agency said speculators controlled 48 percent of the open interest in New York Mercantile Exchange crude oil futures and options as of July 15. That was an increase from the 38 percent the agency had previously attributed to speculators.

The senators said that, as the agency gathers more information, it may find that speculators control an even larger share of the oil futures market.

"We are greatly disturbed that although CFTC staff obviously knew that the underlying data used to prepare the interim report was seriously flawed, the interim report was nonetheless publicly released," the lawmakers said.

With oil prices reaching record levels above $147 a barrel in July, before retreating, many lawmakers blamed increased trading by institutional investors on futures markets for helping to boost the price of oil. Lawmakers also accused the commission of not doing enough to rein in these speculators.

In response to the Congressional outcry, an interagency task force was created in June to determine the cause of the surge in commodity prices. The task force, chaired by CFTC staff, included representatives from the Federal Reserve, Treasury Department, Energy Department, and others.

The final report on the role of speculation in oil markets is expected in mid-September. (Reporting by Ayesha Rascoe; Editing by Walter Bagley)

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