Author Learsy: Speculative Trading Causing Steep Rise in Oil Prices

The recent dramatic rise of oil prices is due to speculative trading, charges author and former commodities trader Raymond Learsy in an article for Huffington Post.

The government must intervene, argues Learsy, author of "Oil and Finance: the Epic Corruption Continues 2010-2012."

"The days of the commodity exchanges functioning as casinos should be brought to a cataclysmic halt by forceful government action serving the interests of the public's well-being and sane economic policy."

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The price of oil is up over 10 percent, or over $10 a barrel, in recent weeks, translating into a $200 million a day cost for the U.S. economy. The price increase has been attributed to a drop in exports from Libya, disruptions in Nigeria and unrest in Egypt.

But Learsy doesn't buy those explanations.

Those conventional explanations, according to Learsy, do not mention that "the game may be rigged and that the oil industry and the commodity exchanges are taking us down the garden path, with a corrupt system that has left all vestige of fair play and market forces that reflect true conditions of supply and demand."

Government agencies may be starting to recognize that the game is broken or even rigged, he notes.

The Federal Trade Commission has opened a probe into oil price fixing. It's not yet clear if the investigation will result in anything meaningful, he says, noting that previous probes did not.

Meanwhile, the Commodity Futures Trading Commission is examining excessive speculation "position limits" of exchange-traded derivatives, Learsy notes. "That speculative/trading positions on the exchanges are some 30 times greater than physical product seems to have escaped them either through baleful ignorance or worse."

Because U.S. gas producers cannot export natural gas by sea, he explains, natural gas is a domestic market subject to American anti-trust laws and a true reflection of supply and demand.

"Were OPEC and its ilk operating in the U.S. market as American or American-based oil companies, they would be hauled off in handcuffs for their illegal collusionary activities."

Foreign oil exporters such as Saudi Arabia or Russia, working through their sovereign wealth funds, can manipulate oil prices by holding massive amounts of oil on the commodities markets.

That's why greater transparency is essential, he argues. "Who is trading, on whose account? Are they simply traders, or are they producers and consumers of the commodities being traded?"

Increased summer vacation travel in addition to instability overseas helped boost prices, experts tells The New York Times. Although more U.S. oil production, slowing growth in China, and a poor European economy should keep prices down in the future, it's difficult to predict political turmoil abroad, they say.

"Oil price predictions used to be about oil consumption and markets, but now it’s about where the next riot will break out," Stale Tungesvik, a senior executive at Statoil, the Norwegian oil company, tells The Times. "It’s so much more politically based, and that makes it a mystery to everyone."

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