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Speculator? Oil Firm? Theories on Crude Spike


As theories swirl around Monday’s unprecedented jump in oil futures, U.S. government officials suggested that a financial trader was responsible, though market participants suspect an oil producer might have been caught in dire need of extra barrels.

Before the contract expired at the close of trade Monday, crude for October delivery surged more than $25 to $130 a barrel on the New York Mercantile Exchange, stunning traders and prompting an inquiry from the Commodity Futures Trading Commission, which has subpoenaed traders.

[Samuel Bodman]

Samuel Bodman

The contract settled $16.37 higher at $120.92 a barrel. (Wednesday, Nymex crude for November delivery fell 88 cents a barrel, or 0.8% to $105.73.)

But who powered the surge, or was burned by it, remains a mystery.

U.S. Energy Secretary Samuel Bodman doused suggestions that an oil company or other commercial-industry participant with a need for crude oil for delivery next month entered the Nymex futures market to secure it. “This was a feature of the financial market … as best I know, these were professional traders in the marketplace,” Mr. Bodman told reporters on the sidelines of an event in Washington.

The acting head of the Energy Information Administration, Howard Gruenspecht, said the outsize price move “did not reflect fundamentals.” He told a Senate panel Tuesday that the most likely case was a short-squeeze, where a trader holding positions to sell crude oil at a lower price had to enter into offsetting contracts to buy oil at much higher prices. “The other option, frankly, is manipulation,” he said.


But several analysts contended that the wild trading, which resulted in the biggest one-day price gain since Nymex crude was offered for trading in 1983, reflected an oil company that suddenly found itself short crude oil after hurricanes Gustav and Ike shut down most production in the Gulf of Mexico and barrels at the main delivery point for Nymex crude had dwindled.

Inventories at the delivery point in Cushing, Okla., fell by 800,000 barrels last week to their lowest level since November. Refineries returning to full service after the hurricanes helped pressure Cushing supplies.

Goldman Sachs analysts noted that the move “reflected extreme tightness in the prompt physical market as participants that were short oil scrambled to find physical oil before expiration, which proved difficult in the context of a tight physical backdrop as refineries have been ramping up from hurricane outages amid very low inventory levels.”

Others in the market believe the cause was a major integrated oil company seeking to make up for output lost after the hurricanes tore into the Gulf Coast.

Mr. Bodman disagreed, saying: “I think it was unrelated to the hurricanes.” He added that it was “an issue that no doubt affected the judgment of the traders.”

Among oil companies with a large presence in the Gulf, Chevron Corp. declined to comment and referred questions to the American Petroleum Institute, where a spokeswoman said she had no information on the matter. Royal Dutch Shell PLC and BP PLC didn’t return phone calls. An Exxon Mobil Corp. spokesman declined to comment.

ConocoPhillips spokesman said the company “is not short crude and our system is generally balanced.” The spokesman added: “While we continue to work some post-storm issues, our activity on the Nymex has been typical and consistent with past business practice.”

Open interest, a measure of how many contracts are outstanding, after the October contract expired was the equivalent of 556,000 barrels for delivery at Cushing next month, Nymex said.

In other commodity markets:

GOLD: Futures rose on continued safe-haven buying due to the financial crisis, with physical demand also strong. Nearby September gold rose $3.50 to $889 an ounce on the Comex division of Nymex; the most-active December contract rose $3.80 to $895.

—Brian Baskin and Isabel Ordonez contributed to this article.Write to Gregory Meyer at [email protected] and Ian Talley at[email protected]

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