OPEC Calls for Curbing Speculators, Blames Hedge Funds for Rout

It's sad when Opec has to tell U.S. lawmakers and regulators what correct policy should be regarding speculation, however, "free market fundamentalism" rules policymaking in the U.S.

Jan. 28 (Bloomberg) -- OPEC wants U.S. regulators to curtail oil trading by hedge funds and speculators who helped make last year the most volatile in crude oil trading.

Abdalla el-Badri, secretary-general of the Organization of Petroleum Exporting Countries, is seeking rules to “limit the level of speculation” by investors who buy oil without planning to use it. Oil surged 46 percent in the first half of 2008 to a record $147.27 only to plunge by the end of the year, prompting OPEC to make its biggest ever supply cuts.

“OPEC has repeatedly called for the need to reduce the role of excessive speculative activity in the market,” el-Badri, who will attend this week’s World Economic Forum in Davos, Switzerland, said in an e-mailed response to questions. “Today, it is impossible to know who is actually buying and selling oil futures.”

While congressional leaders proposed legislation to curtail speculation as rising oil caused gasoline to reach $4 a gallon last summer, regulators at the Commodity Futures Trading Commission are divided over the role of hedge funds in last year’s surge in prices. A series of OPEC supply cuts failed to boost prices as demand weakened in what may be the worst global recession in the postwar era.

“The move above $90 a barrel was driven by financial flows rather than fundamentals” of supply and demand, said Edward Morse, chief economist at Louis Capital Markets in New York. Selling by speculators “helped propel the commodities price downturn, but fundamentals have weighed heavily as well.”

Full article on Bloomberg.