Oil traders on both sides of the Atlantic gave warning that American efforts to extend US regulation to include the London oil market risked simply channelling the trade offshore to Dubai and Singapore.

The protests follow the emergence of a dispute between US and UK regulators over oil market oversight in the City of London, amid claims that speculators are partly to blame for crude prices that have soared to record highs of $139 per barrel.

Phil Flynn, a trader at Alaron Trading in Chicago, said: “In any market it is nice to have a referee, but the risk right now is that if you overregulate you are going to drive the trade overseas to Dubai. If you over-regulate you can kill a market and you actually end up with less transparency by pushing a lot of traders offshore.”

He claimed that efforts by the Commodity Futures and Trading Commission (CFTC) to extend US restrictions to the UK market for oil futures contracts traded on the ICE Futures Europe exchange would be a boon for rival financial exchanges eager to attract business from established centres.

Dubai’s Gold & Commodities Exchange launched three new oil futures contracts — West Texas Intermediate, Light Sweet Crude Oil and Brent Crude Oil — only two weeks ago.

Mr Flynn also claimed that the CFTC’s proposals were unwarranted because the Brent and WTI markets are so large and liquid that they would be “impossible to manipulate”.

John Hall, an independent oil market expert in London, described US efforts to impose regulation in the City as arrogant and misguided. He said that regulation of the oil market would work only if “it was introduced universally around the world”.

Another trader in New York said: “Elements within Congress are accusing the London oil market of being speculative. But this is misplaced and misinformed.” The CFTC wants the FSA to introduce daily price limits on some oil futures contracts and to cap the amount of specific oil contracts that a trader can hold. The moves would limit the ability of a trader to corner the market in one type of oil futures contract.

The proposals are intended to stop traders from evading position limits in the US by trading on ICE — a method known as the “London loop”. The price cap measure already exists in US markets and is designed to prevent steep rises in specific asset prices. However, the FSA believes that only the market should determine the price.

The benchmark light crude oil contract is traded on the ICE Futures Europe exchange. The New York Mercantile Exchange, which the CFTC regulates, has about a 75 per cent share of the West Texas oil contract market. ICE Futures Europe, regulated by the FSA, has 25 per cent. The FSA said yesterday it was co-operating closely with the CFTC in a number of areas but declined further comment.

— A vehicle led by Candover Investments and Goldman Sachs raised its offer for Expro International to £16.15 per Expro share, valuing the UK oil and gas industry services provider at £1.8 billion. Last month the group had raised an initial bid of £1.61 billion to £1.71 billion after an annoucement by Halliburton, the US oil services company, that it was willing to offer £1.7 billion, subject to conditions.

Treasury's windfall

The Treasury stands to scoop a £4 billion windfall next year if oil prices stay at current levels. Simon Kirby, research fellow and economist at the National Institute of Economic and Social Research, said that public finances would probably enjoy a net gain of £3 billion to £4 billion next year rising to £4.5 billion in 2010 if oil prices remained at about the present quarterly average of $119 per barrel.

The bulk of the gain will come from a huge boost to tax revenues from the North Sea oil and gas industry as well as increased fuel duty charged to motorists. But Mr Kirby added that there were uncertainties surrounding the impact of high oil prices on the British economy.

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