Officials to probe traders of crude

Speculation cited for prices

By Patrice Hill (Contact) | Wednesday, June 11, 2008

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Securities regulators Tuesday vowed to pursue possible illegal manipulation of the oil market through an expanded task force including the Federal Reserve and Treasury, helping to drive premium crude prices down $3 to $131.31 a barrel in New York trading.

The regulators will investigate the "role of speculators and index traders in the commodity markets," officials said in their latest concerted effort to jawbone markets to bring down oil prices.

The move, launched under threat of increased regulation by Democrats in Congress, is aimed at "ensuring that commodity prices are determined by the fundamental forces of supply and demand, rather than by abusive or manipulative practices," said Walter Lukken, chairman of the Commodity Futures Regulatory Commission.

On Capitol Hill, Republicans blocked a Democratic energy plan that included provisions to curb oil speculation.

"What we've been hearing increasingly in recent months is the degree to which Wall Street and hedge funds and companies like Goldman Sachs are speculating in oil futures," said Sen. Bernard Sanders, Vermont independent. "There are estimates out there that 25 [percent] to 50 percent of the cost of a barrel of oil has to do with speculation. Should we address that issue? Obviously, we should."

Oil prices soared to a record near $139 Friday - pushing regular gasoline prices above $4 a gallon nationwide for the first time - after economic reports showed a weakening in the U.S. economy that undermined the U.S. dollar.

Since oil and other commodities are priced in dollars, the sagging U.S. currency has become a principal reason cited by speculators for driving up fuel and food prices in international markets. But economists say the 17 percent decline in the dollar against the euro in the last year can account for only 18 percent of the increase in oil prices, which have doubled.

Regulators warned that they are concerned that "high commodity prices are posing a significant strain on U.S. households," in an announcement of the joint investigation by the commodities commission, the Fed, Treasury, departments of Energy and Agriculture, and the Securities and Exchange Commission.

Underscoring the administration's resolve to tame the downward spiral in the dollar that has fed rising commodity prices, Treasury Secretary Henry M. Paulson Jr. continued Tuesday to stress his commitment to a strong dollar.

Mr. Paulson said the dollar should reflect the U.S. economy's fundamental soundness, adding to comments late Monday that he is not ruling out intervention in the financial markets to support the U.S. currency.

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