GAMING OIL PRICES

CFTC Probing United States Oil Fund in Crude Trades
Matthew Leising, February 26, 2009 (Bloomberg News)

"The U.S. Commodity Futures Trading Commission said it is investigating the involvement of United States Oil Fund LP and other investors regarding an increase in the price difference between two oil contracts this month…The investigation announced today is part of the CFTC’s larger national oil-market probe…

"The agency is investigating whether the United States Oil Fund and other investors affected the price of (West Texas Intermediate (WTI)] oil on Feb. 6.
To maintain its holdings in oil futures, the exchange-traded fund sells, or “rolls,” its front-month contracts and buys second-month futures on four predetermined days every month…"

How do you win in this market? Cheat. (click to enlarge)

"The United States Oil Fund’s size means the rolls can cause the front-month prices to decline relative to second-month contracts, widening the so-called contango…Market participants can predict this effect and potentially profit by making the same trade before the fund does…

"WTI prices on Feb. 6 for March, the contract closest to delivery, fell $1, or 2.5 percent, to $40.17 a barrel on the New York exchange, while the April contract rose 39 cents, or 0.9 percent, to close at $46.15. The front-month contract also fell, while the second month rose, on Feb. 4.

"A call to United States Commodity Fund was not immediately returned."