Oil trading on watchdogs' radar after price rises

6.30pm BST

• Kathryn Hopkins
• guardian.co.uk,
• Friday May 30 2008
• Article history

Oil trading at the New York Mercantile Exchange. Photograph: Justin Lane/EPA

Oil prices ended a volatile week almost $10 below their record $135 levels as the Financial Services Authority joined a worldwide investigation into the potential price manipulation of crude.

The City's financial watchdog formally joined forces with the US Commodity Futures Trading Commission this week to look into whether the oil market is being illegally rigged. The CFTC, the FSA and ICE Futures Europe will require traders to provide daily information on positions they have taken in the oil futures market.

The FSA also admitted that they had been passing information on to the CFTC since 2006 "to assist in the detection of the potential abuses or manipulative trading practices that involve trading in related contracts on UK and US derivative exchanges".

This news came as a number of analysts voiced their concerns over oil prices, which rose above $135 a barrel for the first time last week.

Oil is heading for a sharp correction, according to analysts at Lehman Brothers, who liken the spiralling price to the dotcom boom and bust of 2001.

On a rollercoaster day in the energy markets, US crude fell 77 cents to $125.85 a barrel and London Brent dipped 49 cents to $126.40 in early trading as soaring prices reduced demand for petrol and a stronger dollar lowered the attraction of commodities as a currency hedge.

Later on Friday evening, however, US light crude was up 62 cents at $127.24 a barrel, trading between $124.67 to $128.30. Brent crude was up $1.11 at $128 a barrel, trading between $125 to $129 as the dollar fell to session lows against the euro.

"It's been a volatile period and we're just seeing more of that, and there can be exuberant buying or selling depending on the moment," said John Kilduff at MF Global.

The Energy Information Administration said this week that demand in the US for oil in March fell to its lowest level for that month in five years, the latest signal that consumers are struggling to cope with high prices.

"A rebound in the dollar, speculation about US interest rate hikes and the announcement by the CFTC of measures to enhance the oversight of energy futures markets may be seen as potentially stemming future investment flows into energy and other commodities," said Antoine Halff of Newedge USA.

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