Murky oil dealings to stay beyond regulators' reach

By Jane Merriman - Analysis

LONDON (Reuters) - Record oil prices have prompted calls to tighten regulation of oil futures exchanges, where politicians have blamed speculators for driving up prices.

But the multi-trillion dollar unregulated over-the-counter markets in physical oil and related derivatives potentially pose a bigger challenge.

"I believe there is a loophole here because no one looks at it," said Chris Cook, an energy market consultant. "And there is no transparency in the market."

Regulators are being asked to grapple with the OTC market in oil, but face a difficult task.

Its size is hard to estimate as there are no detailed statistics.

The Bank for International Settlements estimated the OTC market in commodity derivatives at $9 trillion at the end of 2007, up by nearly a fifth from the end of June 2007.

The BIS data does not give any breakdown for oil.

One senior executive at a UK investment bank estimated that the OTC market is 10 to 15 times bigger than futures markets.