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Speculation by large investors -- and not supply and demand for oil -- were 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Since then, these investors have withdrawn $39 billion from those markets as prices have retreated dramatically, the report said.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 just under $1.02 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.
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.
"The CFTC has its head in the sand," said Rep. Bart Stupak, D-Mich., chairman of the House Energy and Commerce investigations subcommittee.
Stupak said the Masters report shows that that oil prices soared when speculators poured money into future markets even as the federal Energy Information Administration was forecasting supply would exceed demand.
Legislation before the Senate would put limits on the amount of oil certain traders, interested only in speculation, would be allowed to purchase in futures markets and give new authorities and staff to the CFTC to regulate oil markets.