[Pen-l] Federal agency opens investigation into oil sale

[Charles Brown <cdb1003@xxxxxxxxxxx>]

Non-coddling

CB

http://finance.yahoo.com/news/Federal-agency-opens-apf-14488475.html 

Federal agency opens investigation into oil sale 
Federal agency announces investigation of US Oil Fund after huge crude 
sale 

NEW YORK (AP) -- Federal regulators have 
opened an investigation into 
a massive investment fund that allows small investors to place bets on 
the New York Mercantile Exchange. 

The United States Oil Fund, which at
 times controls enough oil 
contracts to supply the world with crude for a day, sold more than 
85,000 contracts on Feb. 6. 

Each contract represents 1,000 barrels of oil. 

Oil traders have become increasingly critical of the fund, which at 
one point built a stake equal to 20 
percent of contracts traded on the 
open market. 

The Commodity Futures Trading 
Commission said Thursday it was closely 
monitoring trades on Nymex, including activities by the fund. 

The fund typically sells the
 contracts it holds for a particular month 
in one day then buys into the next month's contract, a maneuver that 
is called a "roll." 

"CFTC enforcement staff are investigating 
the trading activity of 
multiple market participants, including United States Oil Fund LP, in 
crude oil markets concerning the
 February 6, 2009 roll," Stephen J. 
Obie, acting director of the CFTC Division of Enforcement, said in a 
statement. 

Traders say the size of the United States
 Oil Fund has skewed the 
market, creating extreme price swings between the spot price of oil 
and contracts two or three months out. 

The fund did not immediately return 
calls late Thursday. 

Even traders who are critical of the fund don't believe anything 
illegal has occurred, but say that the fund has become so large, it 
has pried the market free of fundamental logic. 

"I think it's become of victim of its 
own success," said trader and 
analyst Stephen Schork. "A lot of people investing in this fund think 
oil has hit bottom and everyone is 
buying into it. But you get one 
fund controlling one out of every five contracts and we're not talking 
about supply and demand anymore. 
We're talking about a pyramid 
scheme." 

The United States Oil Fund was founded
 three years ago by Victoria Bay 
Asset Management and the American Stock Exchange. 

In April 2006 the fund's director of portfolio
 research laid out its 
investment strategy. 

"The fund intends to invest primarily in 
those futures contracts that 
are in the two months closest to expiration because we feel those 
contracts will permit the fund to best 
achieve its investment 
objective," said John Hyland at the time. "The partnership does not 
seek to use leverage in the portfolio to 
achieve its investment goals."
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