Oil trading house Arcadia Petroleum has robustly denied charges made by US regulators that it manipulated the US oil market three years ago.

The move opens the door for a court case fighting the Commodity Futures Trading Commission over the regulation of the murky physical oil market.

The CFTC on Tuesday charged the London-based Arcadia, two affiliates in the US and Switzerland and two traders with manipulating oil prices in 2008 by amassing dominant positions in the physical market.

The CFTC charge is only the second oil manipulation case it has filed since launching a “nationwide crude oil investigation” three years ago as the cost of US oil prices surged towards a record high of $147 a barrel.

Colin Hurley, Arcadia chief financial officer, said in a statement the CFTC was wrong “on both the facts and the law”.

The CFTC said traders had created the impression of a shortage in the market, lifting futures oil prices, and shortly afterwards dumping the barrels into the market, depressing prices. However, Arcadia said it never had a significant trading position that could benefit or suffer from a rise or fall in the price of West Texas Intermediate oil throughout the period under scrutiny by the CFTC.

“Arcadia has reviewed extensively the facts related to our trading over this period more than three years ago and we are confident that no manipulation was attempted or occurred, and that no laws were broken,” Mr Hurley said. “Our crude oil trading activity over this period was lawful and appropriate.”

The court battle will test the capacity of the CFTC, under strong pressure in Washington to crack down on what many lawmakers perceive as excessive speculation in commodities markets, to win big cases in courts.

The regulator has previously suffered setbacks in court. Commodities lawyers warned the conjunction of physical oil markets and derivatives markets involved in the Arcadia case was a largely untested area.

Earlier, John Fredriksen, the Norwegian-born shipowner billionaire who controls Arcadia through his Farahead Holdings group, said the charges against the company were “rubbish”, according to Bloomberg.

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