NoelynThank you for posting that. Extraordinary! I post below...

Noelyn

Thank you for posting that. Extraordinary! I post below the first part of a Market watch article re funds getting into oil.



NEW YORK (MarketWatch) -- Big pension and endowment funds that invest in commodities by modeling their exposure on popular indexes have increased their purchases of crude rapidly in recent months, an analysis of regulatory data shows.

This stake has likely contributed to the doubling in oil prices this year, a swift advance that has brought the role of financial speculators back onto the radar of policy-makers -- some of whom say financial investments in commodities should be curbed.

Passive investors increased their crude-oil holdings to the equivalent of more than 600 million barrels in June, up more than 30% from the end of last year, a MarketWatch analysis of Commodity Futures Trading Commission data and the most popular commodities indexes shows. See detailed description of MarketWatch's findings.



Over the same period, crude futures have jumped 60%, topping $70 a barrel in early June on the New York Mercantile Exchange. Oil rallied 41% in the second quarter alone, the biggest three-month gain in 19 years, even as energy agencies forecast a second-straight yearly decline in global oil demand this year.

The correlation between rising oil prices and increased index investment has reawakened calls to restrict the ability of financial investors to take large stakes in commodities.

Unlike in past decades, though, shadowy hedge funds and secretive financiers aren't getting the major blame. Instead, it's long-term investors like California's biggest public-employee pension fund and Harvard University's endowment that have gradually widened to include assets beside stocks and bonds.

The makeup of this new class of commodity investors means some of the same people feeling the pangs of sharper gasoline prices also are getting an indirect benefit from their retirement funds' bets on commodities.

"They are looking after the interest of retired teachers and doctors and other people," said Tim Guinness, chief investment officer at the $500 million Guinness Atkinson Global Energy Fund /quotes/comstock/10r!gagex (GAGEX 20.64, +0.10, +0.49%) .

Big index investors have moved into commodities as a hedge against inflation and a weaker U.S. dollar. But their combined weight is so large that they risk having an outsized impact on prices they aim to simply follow.

"Institutional investors such as country funds and pension funds are basically pushing prices where they shouldn't go," said Steve Briese, author of "The Commitments of Traders Bible." MarketWatch used a supplement to the CFTC's Commitments of Traders report to calculate index traders' holdings in oil positions.

New momentum
The rise in prices and index investment comes as the Obama administration campaigns for a new legislation to overhaul the financial system, partly by tightening regulation in opaque over-the-counter markets and complicated derivatives trading.

A Senate investigations panel led by Sen. Carl Levin, D-Mich., last week released a 247-page report saying index traders have made large purchases on the Chicago wheat-futures market and have pushed up futures prices over the past few years.

On Tuesday, Rep. Peter DeFazio, D-Ore., introduced a bill that would give the CFTC new authority to prohibit "excessive speculation."

The move to rein in financial investment in commodities reached a fever pitch last year as energy and food costs spiked. Then, as prices tumbled in the second half, momentum for a big legislative change dissipated.

Nevertheless, some analysts say there's no solid proof that financial investors are driving up commodities prices. "We would argue that the reason most of these participants are getting into the market is due to the perception of tightening fundamentals," said Doug MacIntyre, senior oil-market analyst at the Energy Information Administration, the statistical arm of the U.S. Energy Department.

The CFTC in September released a report showing index investment had no impact on last year's rally in oil prices. The report, based on a special survey of swaps dealers, showed index holdings of crude oil declined in the three quarters ended June 30 while crude prices rose sharply.