WASHINGTON — Speculation by large investors — and not supply and demand for oil — was a primary reason for the surge in oil prices during the first half of the year and the more recent price declines, an independent study concluded Wednesday.
The report by Masters Capital Management said investors poured $60 billion into oil futures markets during the first five months of the year as oil prices soared from $95 a barrel in January to $145 a barrel by July.
Since then, these investors have withdrawn $39 billion from those markets as prices have retreated dramatically, the report said. Oil traded at about $102 a barrel Wednesday on the New York Mercantile Exchange.
“We have clear evidence the fund flow pushed prices up and the fund flow pushed prices down,” said Michael Masters of Masters Capital Management, calling the amount of money moving into oil futures markets by large institutional investors in the early part of the year “way off the scale.”
Masters said its analysis shows investors “began a massive stampede for the exits” on July 15 and that this caused the price decline.
“These large financial players have become the primary source of the dramatic and damaging volatility seen in oil prices,” concluded the report.
The report was released Wednesday by House and Senate sponsors of bills to put additional curbs on oil market speculation and comes in advance of a report on oil market speculation expected possibly this week by the Commodities Futures Trading Commission. The commission regulates commodity markets.
Sen. Maria Cantwell, D-Wash., a sponsor of an anti-speculation bill, said the Masters report challenges CFTC claims to date that supply and demand forces — and not excessive speculation — has driven up oil prices.
“This analysis illustrates that when oil speculators poured large amounts of speculative money into oil markets, prices skyrocketed just as they were hoping … And when the speculative money got pulled out, prices tumbled,” she said.
Sen. Byron Dorgan, D-N.D., said he wants to know “how oil speculators were able to drive prices up and down while the CFTC was asleep at the switch.”
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