Speculation by large investors -- not supply and demand -- was a primary reason for the surge in oil prices during the first half of the year and for the more recent price declines, an independent study concluded Wednesday.
The report by Masters Capital Management said investors poured $60 billion into oil futures markets during the first five months of the year as oil prices soared from $95 a barrel in January to $145 by July.
Since then, those investors have withdrawn $39 billion from those markets as prices have retreated dramatically, the report said. Oil traded at about $102 a barrel Wednesday on the New York Mercantile Exchange. "We have clear evidence the fund flow pushed prices up and the fund flow pushed prices down," said Michael Masters of Masters Capital Management, calling the amount of money moving into oil futures markets by large institutional investors in the early part of the year "way off the scale."
Masters said its analysis showed that investors "began a massive stampede for the exits" July 15 and that this caused the price decline.
"These large financial players have become the primary source of the dramatic and damaging volatility seen in oil prices," the report concluded.
The report was released Wednesday by House and Senate sponsors of bills to put additional curbs on oil market speculation and comes in advance of a report on speculation that might be released this week by the Commodity Futures Trading Commission, which regulates commodity markets.
Sen. Maria Cantwell (D-Wash.), a sponsor of an anti-speculation bill, said the Masters report challenged CFTC claims to date that supply-and-demand forces -- and not excessive speculation -- had driven up oil prices.
"This analysis illustrates that when oil speculators poured large amounts of speculative money into oil markets, prices skyrocketed just as they were hoping. . . . And when the speculative money got pulled out, prices tumbled," she said.
Sen. Byron L. Dorgan (D-N.D.) said he wanted to know "how oil speculators were able to drive prices up and down while the CFTC was asleep at the switch."
An interagency task force led by the CFTC concluded in an interim report in July that "fundamental supply-and-demand factors" influence the oil markets and that the data do not support "the proposition that speculative activity has systematically driven changes in oil prices."
Senate critics of the regulatory agency charged that the report was based in flawed evidence.
"The CFTC has its head in the sand," said Rep. Bart Stupak (D-Mich.), chairman of the House Energy and Commerce investigations subcommittee.
Stupak said the Masters report showed that oil prices soared when speculators poured money into futures markets even as the federal Energy Information Administration was forecasting that supply would exceed demand.
For months, Congress has been considering various measures aimed at curbing oil market speculation, but those efforts have been thwarted amid disputes over other energy issues, such as taxing oil companies and new offshore drilling.
Legislation before the Senate would put limits on the amount of oil that certain traders, interested only in speculation, would be allowed to buy in futures markets and give new authority and staff to the CFTC to regulate oil markets.