GoFuckYourself.com - Adult Webmaster Forum - As Oil Sinks, U.S. Officials Plan to Fight Speculation

NEW YORK -- A financial crisis and recession this year have pulled off what U.S. lawmakers couldn't: popping what many believe was a speculative bubble in oil prices.

But a collapse from highs above $145 a barrel into the $30 range doesn't mean Congress is washing its hands of the issue. Instead, many lawmakers are emboldened, seeing both the crude-price collapse and the systemic failure of the credit-derivatives market as reason to push ahead with rules to prevent what they call "excessive speculation" in commodity markets.

"The anti-speculation talk may have subsided in the market slide, but its ugly head is likely to rise again," said Greg Mocek, a former head of enforcement at the Commodity Futures Trading Commission, now a partner at law firm McDermott Will & Emery in Washington.

Light, sweet crude oil for January delivery on Friday fell $2.35 a barrel, or 6.5%, to $33.87 on the New York Mercantile Exchange. The new benchmark contract, which ended higher on Friday, is poised to begin trading above $40.

President-elect Barack Obama vowed Thursday to impose more stringent regulation of financial, stock and commodity markets. In his nomination of Gary Gensler as CFTC chairman, Mr. Obama charged his appointee with "regulating some of the unsound practices and excessive leverage that helped cause this crisis."

A consensus has emerged that at least part of the reason for oil's plunge stems from unprecedented financial-market strains that forced speculative investors to dump assets and raise cash. Speculators include funds, banks and other financial institutions trading to gain from price movements, rather than hedge against them for commercial reasons.

With the Enron energy-market fraud still in recent memory, many lawmakers cried foul as prices skyrocketed. The CFTC has since found little evidence of intentional market manipulation or trading strategies meant to artificially sway prices.

Many market watchers say there isn't enough transparency in darker recesses of the markets for the agency to make such assertions. They argue that speculation unfettered by strong oversight may have unintentionally sent prices to levels divorced from demand and supply factors, doing exactly what the CFTC was created to guard against.

"It's incredibly important that we understand the causes of the bubble and make sure that we return the market to transparency so we don't have this happen again," said Sen. Maria Cantwell (D., Wash.), one of the lawmakers leading the charge for stricter regulation.

Washington appears poised to forge ahead with new commodity-trading rules. There are already 30-plus proposals for greater commodity regulation, and lawmakers in both chambers are writing legislation that would at the very least give regulators authority to set position limits in over-the-counter markets.

"Even if speculators only had a small impact [on price], that's not right. Our job is to guard against fraud and abuse," said CFTC Commissioner Bart Chilton, a Democratic appointee. "Congress should act expeditiously to prevent the type of excessive speculation and leveraging we have seen."

Oil markets bore undeniably bullish features in the first half of the year. World demand was rising, unrest continued to afflict big producers such as Nigeria, and new sources of crude were proving big disappointments, stoking fears that demand would continue to outpace supply.

Oil, already on a tear for much of the decade, soared in response. After starting 2008 by hitting $100 a barrel for the first time, crude prices continually set record highs.

Most market participants say some speculation is healthy and even necessary to provide liquidity. But in the past two years, oil prices more than doubled, then fell to less than a third of all-time highs hit in July, fueling demands for regulation that would stabilize consumers' energy bills.

The more oil prices climbed, the more that market veterans searched for reasons to justify moves that brought oil to an intraday high of $147.27 a barrel in July. Critics were quick to blame large banks and hedge funds for causing the price rises.

he fall in prices since July has happened with stunning velocity. While fears of a global recession and a real contraction in oil demand are the principal reasons for the stampede out, some analysts have also seized on a retreat by speculative investors as proof they were behind the rally in the first place. It's hard to believe that more than $100 a barrel's worth of demand has vanished from the world in five months, they say, despite the world-wide slowdown.

Market positioning appears to support this view. Crude-oil futures and options contracts open on the world's two major energy exchanges have declined by nearly a quarter since May, according to a report by LCM Commodities.

If fast money is down, it's not out, with some funds still in the market banking on price declines rather than increases.

"We were very bullish in the first part of the year and subsequently we flipped our view and are quite bearish at the moment," said Dennis Crema, chief executive of BlueGold Capital Management LLP, an oil hedge fund. "We at BlueGold were never in the camp that rampant speculation was causing the market to rally." The $1.1 billion fund returned just under 200% through November, profiting even as crude fell by half.

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