Author Learsy: 'Price of Oil Is Rigged'

"The price of oil is rigged," alleges author and former trader Raymond Learsy.

Prices for most other commodities have dropped and there's a bountiful supply, Learsy writes in an article for The Huffington Post. U.S. commercial crude inventories are near all-time highs, domestic oil production is about a million barrels a day higher than it was last year, weekly gasoline inventory is up substantially and Chinese demand is flat or down.

So why has the price of oil increased 9.5 percent in the last month? Because of manipulation by speculative traders, Learsy argues.

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There is an utter lack of transparency oil trading on the commodity exchanges, writes Learsy, author of "Ruminations on the Distortion of Oil Prices and Crony Capitalism."

"We don't know who is taking positions and for whose account. Are the oil companies themselves directly or indirectly, or the sovereign wealth funds of oil-producing nations with their billions upon billions of investable capital pushing up prices by buying oil derivatives?"

Trading in oil derivatives has "exploded exponentially," he says, pointing out that paper barrel contracts dwarf actual oil production 30-to-1.

American consumers pay a "speculative premium" that inflates the price of gasoline and other oil products and wipes away the economics of supply and demand, he explains.

Over 80 percent of oil and energy trading on commodity exchanges is speculative trading by players not involved in actual oil production or consumption, including investment banks like JPMorgan Chase and Goldman Sachs.

Regulators lack any meaningful oversight of oil speculation. The Commodity Futures Trading Commission has been holding hearings and taking public comments, but has yet to take any substantive action.

With its growing production of shale oil and natural gas, the United States is approaching energy independence, Learsy says. The United States has over 700 million barrels of oil in its Strategic Petroleum Reserve as a cushion against sharply rising prices.

"Given today's aberrant prices it would be a stroke of courageous public policy for the Energy Department to announce the release of 100 million barrels from the reserve to counter what is clearly an artificial and bloated price of oil," Learsy argues. "The speculators and manipulators would be sent running to the hills while the American consumer would for once have something to celebrate."

European Union officials raided the offices of three oil companies earlier this year as part of an investigation into price rigging. The U.S. Federal Trade Commission (FTC) then opened a similar investigation, Bloomberg reported. An investigation by the FTC rather than the Justice Department indicates regulators do not suspect criminal activity, according to Bloomberg.

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