Report says speculators had big role in oil price run-up

NEW YORK -- They lacked the manipulative intent of the Hunt brothers, who famously cornered the silver market in the 1970s. Still, big investors speculating on oil are largely to blame for the record energy prices that squeezed millions of Americans this year, according to an independent report out Wednesday.

The findings of hedge fund managers Michael Masters and Adam White on the controversial issue were released Wednesday by Sens. Byron Dorgan, D-N.D., and Maria Cantwell, D-Wash., and other lawmakers.

Pension funds, college endowments and other institutional investors poured cash into commodity index funds, they said. And that — not just supply-and-demand factors — helped to drive crude to a record $145.29 a barrel in July.

The recent plunge in oil prices, the study adds, was caused by these same investors yanking huge amounts of money out of these funds, which invest in oil futures markets.

The study said that institutions poured $60 billion into commodity funds in the first five months of the year, a period in which the price of a barrel of oil soared nearly $33.

But they engaged in a "mass stampede for the exits" out of commodities index funds beginning in late May, when Congress held the first of several hearings on speculation, the report says.

Investors have withdrawn $39 billion from these funds since July 15, the report says. In that period, crude dropped by roughly $29 a barrel.

"While individually these big investors are trying to do the right thing for their portfolios and stakeholders, they are unaware that collectively, they are having a massive impact on the futures markets that makes the Hunt brothers pale in comparison," says Masters, of Masters Capital Management, and White, who runs White Knight Research & Trading.

The authors' findings challenge the view of many economists, Federal Reserve Chairman Ben Bernanke and other government agencies, which say global economic conditions drove prices.

Scott DeFife of the Smart Energy Policy Coalition said the report "ignores publicly available facts that invalidate their premise," such as a recent report by AAA that showed Americans drove 53 million less miles this summer than in 2007.