April 3, 2008 / 2:47 PM / in 10 years

US CFTC says speculators not driving up oil prices

(Adds comments from CFTC official)

By Tom Doggett

WASHINGTON, April 3 (Reuters) - The Commodity Futures Trading Commission, which regulates U.S. futures markets, told Congress on Thursday that speculative investors were not responsible for pushing crude oil prices to record levels.

"Looking at the trends in the marketplace, combined with studies on ... the impact of speculators in the markets, there is little evidence that changes in speculative positions are systematically driving up crude oil prices," CFTC Chief Economist Jeffrey Harris told the Senate Energy and Natural Resources Committee at a hearing on the influence of speculators on the price of oil.

Instead of speculation, Harris said, it appears that market fundamentals like strong oil demand in China and India, a weak U.S. dollar and geopolitical tensions in big oil producing countries such as Iraq and Iran "provide the best explanation for crude oil price increases."

Many lawmakers on the Senate committee disagreed, saying that hedge funds and other speculative investors had taken over futures markets and pushed up oil prices.

"There is an orgy of speculation in the futures markets," said Democrat Byron Dorgan. "This is a 24-hour casino with unbelievable speculation."

He said about 20 times more oil is sold daily in the futures markets than actually exists.

Along with the rise in crude prices, which is currently above $100 a barrel, the number of outstanding oil futures contracts at the New York Mercantile Exchange has also increased, growing from about 1 million contracts in 2004 to over 2.8 million contracts in the most recent week, according to Harris.

He said the share of outstanding NYMEX oil contracts held by speculators has increased marginally from 31 percent to about 37 percent over the last three years.

Harris said the number of speculative traders and commercial traders, like oil companies or airlines that need to hedge fuel costs, buying and selling oil futures at NYMEX has been nearly constant over the last 22 months, with about 120 commercial and 310 noncommercial participants in the market. (Reporting by Tom Doggett; editing by Jim Marshall)

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