U.S. Regulators Push to Strengthen Oversight of Energy Markets

Faced with enormous political pressure to tighten the oversight of energy trading, federal regulators said Thursday that they have been investigating oil and derivative markets for six months to look into potential price manipulation. The revelation came as the agency, the Commodity Futures Trading Commission, also announced a series of measures intended to heighten regulatory supervision of energy trading and bring “greater sunshine” into the commodities markets. The commission, which does not typically disclose ongoing investigations, said that since December 2007 it had been conducting a nationwide inquiry of “practices surrounding the purchase, transportation, storage and trading” of oil contracts. It did not say whom it was investigating, nor did it say when it expected the investigation to be completed. The commission seems keen to address concerns raised in Congress this year that oil prices have been somehow artificially lifted by investors’ enthusiasm for energy commodities. Oil futures have risen 32 percent this year and have more than quadrupled since 2003. On Thursday, oil futures fell $4.41 a barrel to $126.62 on the New York Mercantile Exchange. Gasoline prices touched a national average of $3.95 a gallon, up from about $3.20 a gallon a year ago. The commission said the new measures would “improve oversight of the energy futures markets to ensure they reflect fundamental economic forces of supply and demand, free of manipulation and fraud.” But some analysts said the rules would do little to reduce volatility in the oil market, or lead to lower prices. The new measures include, for example, an extended agreement with the commission’s British counterpart to expand the surveillance of energy futures contracts with delivery points in the United States. The commission’s second set of measures would require institutional investors who manage so-called commodity index funds, which are meant to mimic oil prices, to provide monthly reports on their activities, a rule that so far applied only to farm commodities. The measure should help the commission determine whether adjustments to trader reporting or classification are required, it said. The commission said it would also review trading practices for index traders to ensure they are not “adversely impacting the price discovery process, and to determine whether different practices should be employed.” But John D. Dingell, Democrat of Michigan and chairman of the House committee on energy and commerce, said the commission had failed to address specific mechanisms that allow commodity-linked funds to invest in energy markets with minimal amounts of money. Such practices have caused “rampant speculation,” he said. “For too long, C.F.T.C. has been operating in the dark,” Mr. Dingell said. “Unfortunately, the C.F.T.C. has not proposed how to close off the loopholes that allow commodity index funds and others to take such massive positions that they possibly distort oil futures markets.” In recent testimony to Congress, Jeffrey Harris, the commission’s chief economist, said that a weak dollar, strong demand from the emerging world economies, geopolitical tensions in oil-producing regions, supply disruptions, and unfavorable weather had contributed to the rise in the price of oil, not market manipulation.