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(Reuters) - Oil prices pulled back sharply from a record above $135 a barrel on Thursday as dealers took profits from a dazzling rally and a recovering U.S. dollar dampened commodities markets. U.S. crude settled down $2.36 at $130.81 a barrel after jumping earlier in the session to a record $135.09. London Brent crude fell $2.19, to $130.51, after touching a peak of $135.14.
"Some people had set a target of $135 as part of their investment strategy and once that price was achieved, have started taking some profits. Dealers also noted selling across other commodities markets as the dollar recovered on a drop in U.S. jobless claims. The pullback came after crude rallied more than a third since the start of the year, driven by worries about tight stocks of refined products in the near term and mounting global demand over the longer term. "The combination of increasing demand and constricted supply will continue to keep oil prices strong," Robin Batchelor, manager of BlackRock's BGF World Energy fund, said in a research note.
Oil has risen sixfold since 2002, propelled by rising consumption in China and other developing countries. Concerns about long-term supply tightness have recently pushed prices for future delivery even higher than prompt contracts. December 2016 U.S. crude reached $145.60 a barrel, making it the loftiest contract on the futures curve.
Oil prices surged on Wednesday after U.S. weekly data showed crude stocks declined by 5.4 million barrels. OPEC Secretary-General Abdullah al-Badri said Thursday the group can do nothing to lower oil prices, and called the oil market "crazy." The United States has repeatedly called on the Organization of the Petroleum Exporting Countries (OPEC) to boost its output to try to calm markets, but the group has said no increase is needed. uk.news.yahoo.com...
“Until recently, US energy futures were traded exclusively on regulated exchanges within the United States, like the NYMEX, which are subject to extensive oversight by the CFTC, including ongoing monitoring to detect and prevent price manipulation or fraud. In recent years, however, there has been a tremendous growth in the trading of contracts that look and are structured just like futures contracts, but which are traded on unregulated OTC electronic markets. Because of their similarity to futures contracts they are often called “futures look-alikes.”
The only practical difference between futures look-alike contracts and futures contracts is that the look-alikes are traded in unregulated markets whereas futures are traded on regulated exchanges. The trading of energy commodities by large firms on OTC electronic exchanges was exempted from CFTC oversight by a provision inserted at the behest of Enron and other large energy traders into the Commodity Futures Modernization Act of 2000 in the waning hours of the 106th Congress.
The impact on market oversight has been substantial.
Then, apparently to make sure the way was opened really wide to potential market oil price manipulation, in January 2006, the Bush Administration’s CFTC permitted the Intercontinental Exchange (ICE), the leading operator of electronic energy exchanges, to use its trading terminals in the United States for the trading of US crude oil futures on the ICE futures exchange in London – called “ICE Futures.”
Previously, the ICE Futures exchange in London had traded only in European energy commodities – Brent crude oil and United Kingdom natural gas. As a United Kingdom futures market, the ICE Futures exchange is regulated solely by the UK Financial Services Authority. In 1999, the London exchange obtained the CFTC’s permission to install computer terminals in the United States to permit traders in New York and other US cities to trade European energy commodities through the ICE exchange.
A glance at the price for Brent and WTI futures prices since January 2006 indicates the remarkable correlation between skyrocketing oil prices and the unregulated trade in ICE oil futures in US markets. Keep in mind that ICE Futures in London is owned and controlled by a USA company based in Atlanta Georgia.
In January 2006 when the CFTC allowed the ICE Futures the gaping exception, oil prices were trading in the range of $59-60 a barrel. Today some two years later we see prices tapping $120 and trend upwards. This is not an OPEC problem, it is a US Government regulatory problem of malign neglect.
By not requiring the ICE to file daily reports of large trades of energy commodities, it is not able to detect and deter price manipulation.
Originally posted by donwhite
Commodity future markets do not serve a useful social purpose any longer. We cannot afford the luxury anymore!
German leaders are to propose a worldwide ban on oil trading by speculators, blaming the latest spike in crude prices on manipulation by hedge funds.
It is the most drastic proposal to date amid escalating calls from Europe, the US and Asia for controls on market forces, underscoring the profound shift in the political climate since the credit crunch began. India has already suspended futures trading of five commodities.
Uwe Beckmeyer, transport chief for Germany's Social Democrats, said his party would call for joint measures by the G8 powers to prohibit leveraged trading on energy contracts. "It's an extreme step but it has to be done," he told the Berlin media.