Fed probe targets oil

WASHINGTON — Federal regulators are six months into a wide-ranging investigation of U.S. oil markets, with a focus on possible price manipulation.

The Commodity Futures Trading Commission on Thursday said it started the probe in December and took the unusual step of publicizing it "because of today's unprecedented market conditions."

Crude prices have risen more than 42 percent since early December, even after a decline of more than $4 to $126.62 a barrel Thursday on the New York Mercantile Exchange. Gasoline prices are nearing a national average of $4 a gallon, up from about $3.20 a year ago.

The commission said it is investigating potential abuses in the way crude oil is purchased, shipped, stored and traded nationwide, but did not reveal details. Also on Thursday, the agency announced a handful of other initiatives designed to increase transparency of U.S. and international energy futures markets.

For example, the commission said it will immediately require monthly reports from institutional investors who manage funds designed to mimic the price of crude oil and other energy futures. The goal, the agency said, is to identify the amount of such index trading and to "ensure that this type of trading activity is not adversely impacting the price discovery process."

The commission also said it has reached an agreement with its British counterpart and InterContinental Exchange Inc.'s Futures Europe to expand surveillance of energy futures contracts with U.S. delivery points, including the benchmark West Texas Intermediate crude, which trades on the Nymex.

"The implementation of today's measures will improve oversight of the energy futures markets to ensure they reflect fundamental economic forces of supply and demand, free of manipulation and fraud," the commission said in a statement.

Analysts said the commission's action would likely have a limited impact on oil prices, which have risen on a combination of factors, including growing demand in China and other developed nations, the falling value of the dollar, geopolitical tensions and low interest rates, which have fueled a futures buying binge by institutional investors seeking to ride oil's upward momentum.

It is the last factor, exacerbated by the Federal Reserve's efforts to prop up the ailing housing market, that is playing the biggest role in the recent runup, according to Howard Simons, a strategist at Bianco Research in Chicago.

"Eliminate that excess money, and the problem (of soaring prices) disappears," he said.