The phenomenal rise in oil prices show signs of a bubble, but a crash is not imminent, billionaire hedge fund manager George Soros told U.S. lawmakers on Tuesday.
"We are currently experiencing the bursting of a housing bubble and, at the same time, a rise in oil and other commodities which has some of the earmarks of a bubble," Soros said in prepared testimony before the U.S. Senate Commerce Committee.
"To be sure a crash in oil markets is not imminent," he added.
U.S. lawmakers - mostly Democrats - are looking for legislative ways to rein in speculation in crude oil markets, which they see as the prime mover behind the rise in U.S. oil futures above $135 a barrel last month.
Hungarian-born Soros said commodity index trading "is still inflating the bubble," but oil prices have "a strong foundation in reality."
Rising oil prices are aggravating prospects for a recession, but only such a decline in economic growth would outweigh fundamental factors which have pushed oil prices higher, he said.
Soros said there was "a strong prima facie case against institutional investors pursuing a commodity index buying strategy," which is "intellectually unsound, potentially destabilizing and distinctly harmful in its economic consequences."
Raising margin requirements would have no effect on commodity index buying because they use cash to finance their trading, Soros said.
But raising margins "would be justified because it would discourage speculation," he said.