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London blamed for oil price manipulation { June 13 2008 } Original Source Link: (May no longer be active)
http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article4124552.ecehttp://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article4124552.ece
From The Times
June 13, 2008
US regulator CFTC calls for curbs on oil trading in London
Suzy Jagger in New York
A rift has opened between regulators in Washington and London after the Americans called for restrictions on oil trading in the City.
It is understood that the Financial Services Authority (FSA) is resisting calls by the US Commodity Futures Trading Commission (CFTC) to introduce daily price limits on some oil futures contracts.
The Americans also want to cap the amount of particular oil contracts that a trader can hold. The moves would limit the ability of a trading firm or individual trader to corner the market in one type of futures oil contract.
The price cap measure, which exists in American energy markets, has been devised to stem sharp rises in the price of a particular commodity. However, London regulators believe that the market should determine the price of an asset, rather than it being limited by a daily price cap.
Both regulators want to identify traders who try to manipulate the price of oil, which reached a record $139 a barrel in New York last week. It is understood that the CFTC has urged the FSA to impose limits on the positions that traders can take on the West Texas crude oil futures contract, bringing British traders in line with their American counterparts.
The benchmark light crude oil contract is traded on the ICE Futures Europe exchange. The New York Mercantile Exchange, which the CFTC regulates, has about a 75 per cent share of the West Texas oil contract market. ICE Futures Europe, regulated by the FSA, has 25 per cent.
The regulatory difference between the two, and the trading opportunities it opens up, is known as the London loop. American regulators are concerned that the difference in regulatory regimes allows traders to exploit the less regulated regime in London and distort the price.
However, there is much scepticism about the degree to which financial speculators have driven up the price of oil. Henry Paulson, the US Treasury Secretary, and Alistair Darling, the Chancellor, have indicated separately that they believe the price has been driven by supply and demand.
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