Did speculators drive up oil prices?

Federal regulators have uncovered evidence that oil speculators operating in unregulated “dark markets” may have helped drive the price of crude oil to record highs this year, McClatchy Newspapers has learned.

The Commodity Futures Trading Commission is expected to issue a long-awaited report before Monday, perhaps as early as today, on what role oil speculators played in the 50 percent rise in oil prices earlier this year.

The report isn't expected to declare that speculators are the main cause of the price rise, a conclusion the agency rejected in an interim report in July.

One CFTC commissioner, Michael Dunn, signaled in a speech Friday in Switzerland that the pending report would be inconclusive, noting, “I doubt it is possible to come up with a definitive answer one way or another at this time” about the role of speculators.

However, unregulated markets account for about two-thirds of oil trading on financial markets, and they could be used to manipulate oil prices on the regulated exchanges that account for the remaining oil trading.

The finding that some speculators exceeded positions allowed in regulated markets is sure to spark debate about how much the CFTC knows about the markets it regulates, whether more stringent reporting requirements are needed and whether the government should require more disclosure from speculators and investment banks.

In a recent interview, CFTC Commissioner Bart Chilton told McClatchy that his agency lacks all the tools it needs to gather market information.

It's not entirely clear how the CFTC, which is under heavy criticism from Congress, will portray its findings about the large dark-market positions in the much-anticipated report.

The agency's interim report said it thought that the soaring oil prices earlier this year were due to underlying fundamentals of supply and demand.

Acting CFTC Chairman Walter Lukken is scheduled to testify this afternoon before the House Agriculture Committee.

After the interim report was released in July, he was mocked by Sen. Byron Dorgan, D-N.D., who questioned the report's timing ahead of an expected congressional vote on energy legislation.

On Wednesday, Dorgan called a news conference to present a report ahead of the CFTC's.

His report came from hedge fund manager Michael Masters, who alleges that speculators were almost completely responsible for the run-up in oil prices and their recent decline.

“We have a brain-dead regulator here … content to do nothing,” Dorgan said.

The CFTC declined to comment.

The agency also declined to comment on the report by White Knight Research & Trading that blames index fund investment for this year's huge rise in oil prices.