Page last updated at 23:51 GMT, Tuesday, 17 June 2008 00:51 UK

US cracks down on oil speculators

Worker checks over oil pumps in Iran
The surging oil price is causing strain on businesses and consumers

US regulators have announced plans to impose limits on oil trades overseas.

The US Commodity Futures Trading Commission said the London-based electronic exchange would have to comply with US rules.

The move comes as oil prices notch up record highs, amid fears that speculators are distorting the market.

As a result, fuel costs have shot up hitting the global economy. Airlines have been hit badly, with near record losses expected for 2008 in the US.

US airlines were forecast to report $10bn (5bn) of losses this financial year as sky-high fuel costs erode profits, according to the industry group Air Transport Association (ATA).

Oil prices slipped from their record highs near $140 a barrel reached during Monday trade as investors were cautious ahead of plans by Saudi Arabia to increase production in July.

US sweet, light crude finished down 60 cents at $134.01, while London Brent settled 99 cents lower at $133.72.

Speculators to blame?

But, oil prices are still almost 40% higher than they were at the beginning of the year and, increasingly, this surge is being blamed on speculation by large investors, including hedge funds and banking giants.

They are being accused of pushing commodity prices way above the level they would trade at to satisfy supply and demand trends.

Representing US airlines, the ATA is one group pressing for tighter regulation and increased transparency in the energy markets.

Its head James May told a joint US Senate hearing on speculative oil trading that up to 200 US communities could lose airline service as a result of capacity cuts to save money.

"This nation's economy is inextricably linked to the viability of its air transportation system. If the airlines continue to spiral downward, so will the economy," he said.

Earlier, Air Canada announced that it would have to shed 2,000 jobs - a 7% reduction in its workforce - and ground 7% of its services to survive the rising fuel charges.

More disclosure

Under the plan announced by the US Commodity Futures Trading Commission (CFTC), trading of the West Texas Intermediate oil contract on the ICE Futures Europe - which hosts up to 30% of total trades - will by October be subject to stricter limits on individual positions.

It is hoped this will prevent the ability of a single entity to move oil prices.

Under the measures, European authorities will also share trading data with their US counterparts to improve transparency and crack down on market manipulation.

The ICE exchange said it would comply with US regulatory requirements subject to approval by the Financial Services Authority.

The acting head of the CFTC Walter Lukken said in testimony at a Senate hearing committee: "During these turbulent market conditions for crude oil, the environment is ripe for those wanting to illegally manipulate the markets," he said.

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