Is Oil ETF Being Investigated by the CFTC?

February 27th at 10:00am by Tom Lydon

As oil prices top the $40 per barrel mark, the Commodity Futures Trading Commission (CFTC) is said to be launching a probe into the workings of the largest oil exchange traded fund (ETF).

The issue with the United States Oil Fund (USO), reports Matthew Leising for Bloomberg, is whether the fund and other investors affected the price of oil on Feb. 6. The probe is part of a larger oil-market investigation that the CFTC has been conducting since last year.

In discussions with industry sources, it’s suggested that perhaps the actual subject of the CFTC’s interest is the trading done by others that may have affected end-of-day pricing, instead of within the oil fund itself.

To maintain its holdings in oil futures, USO rolls its front-month contracts and buys second-month futures on four predetermined days each month.

We contacted the United States Commodity Funds, which manages USO, for comment. They said in a statement:

“United States Oil Fund, LP, while it does have ongoing discussions with its regulators and is responding to their requests for information, is not aware that it is a subject of any formal CFTC investigation regarding the trading on Feb. 6, 2009. To the extent that there is any such investigation, United States Oil Fund, LP and its affiliates will fully cooperate. United States Oil Fund, LP puts a high value on compliance with applicable laws and regulations since an orderly and transparent market instills confidence in our investors.”

Oil prices this morning are below $43 a barrel. Traders supposedly pumped money into oil stocks because of a drop in retail gas prices, combined with the Energy Department report that showed demand is rising. Chris Kahn for the Associated Press warns that there is simply too much economic data that differs daily and not to get excited about a recovery of any type soon.

It should be noted that oil and gas prices are not directly related, so just because oil prices per barrel is up does not necessarily mean the gas prices will rise too. The slight relationship that is between oil and gas is so weak and unpredictable, so most laymen would not understand, reports Ed Wallace for BusinessWeek. The major message is that the gasoline futures market is not the oil futures market.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

Tickers

USO