WTI oil price update: Crude holds onto gains after high inventories threaten rally

By By Darrell Delamaide, Oilprice.com

The benchmark West Texas Intermediate contract settled at $77.18 a barrel on Friday, locking in a gain of 4.6% for the week, compared with $73.78 a week earlier. The August contract, which becomes the benchmark on Wednesday, settled at $78.26 a barrel.

The weekly inventory report from the Energy Information Administration on Wednesday showed crude stocks increased 1.69 million barrels in the week ended June 11, compared with the consensus forecast for a decline of 1.3 million barrels.

Futures markets initially shrugged off the report, and, spurred by a rising stock market, pushed prices up on Wednesday to a $77.67 high for the week. Doubts set in again on Thursday, and the price fell below $77 a barrel before recouping some of the ground on Friday.

A new report put out under the aegis of the Organisation for Economic Co-operation and Development, the Paris-based grouping of industrial countries, purported to establish that increased trading by index funds did not contribute to price volatility in futures markets.

The report was authored by two Illinois university professors, Scott Irwin and Dwight Sanders, who have build an academic career on debunking the notion that speculation causes volatility. Not surprisingly, they found once again in their new study that there was "no evidence" to establish a link between large inflows of capital into commodity investment funds and increased volatility in crude oil prices.

The report comes as a conference committee in the US Congress is putting the final touches on regulatory reform legislation that will impose limits on most futures positions.

The authors analyzed data from the Commodity Futures Trading Commission from 2006 to 2009 - a period in which crude oil prices shot up to $147 a barrel and then fell to $33 a barrel.

Even Gary Gensler, the CFTC chairman, expressed the opinion in congressional testimony during his confirmation hearings last year that the rapid growth of commodity index funds and increased hedge fund allocation to commodity assets contributed to the "bubble in commodities prices that peaked in mid-2008."

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