Speculators not causing energy prices to rise
Posted by BrianAnti-capitalist Democrats (and regrettably the Republican candidate for president) won’t like hearing it, but speculators are not to blame for high oil prices in recent months. So sayeth the Commodity Futures Trading Commission.
In one of the broadest and most authoritative studies to date, the Commodity Futures Trading Commission has offered hard statistical data that financial trading hasn’t been driving price moves. The CFTC conducted an unprecedented Wall Street data sweep and scrutinized millions of transactions worth billions of dollars between January and June of this year.
Commodity futures markets have grown fivefold by volume over the last decade, while becoming more complex. “Index traders” are one cause. These pension funds and other institutional investors don’t buy options for commercial use, but rather roll them over from month to month as passive long-term investments. “Swap dealers,” usually investment banks, operate off the main exchanges and sell customized futures packages to firms. These aggregations of options and derivatives are designed to match particular needs and spread risk more broadly.
Lo and behold, the CFTC found that index traders and swap dealers actually reduced their stake in crude oil futures as prices spiked. The number of contracts held by these investors betting that prices would increase — the net long position — fell by 11%, and more were shorting oil than going long over the six-month period. In other words, index traders and swap dealers were driving the future price of oil down.
I hate it when I’m right. Oh well, on to the next excuse for trying to exert more government control over private markets.
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September 16th, 2008 at 11:02 am
Dunno about that, between the state AG’s and the class action lawyers, we’ll probably see some operators paying Dane geld
September 16th, 2008 at 12:52 pm
I’m not convinced.
Until quite recently trading on futures markets was regulated by the CFTC. Trades on regulated markets are subject to reporting requirements. Traders are required to report large trades to the CFTC, which has the responsibility of limiting excessive speculation. However, concurrent with the dramatic increase in speculative trading of energy futures, there has been a shift of this trading to unregulated commodity
exchanges.
Essentially this shift is the result of an exemption written into the Commodity Futures Modernization Act of 2000 at the behest of Enron.
In contrast to trades conducted on the NYMEX, traders on unregulated OTC electronic exchanges are not required to keep records or file Large Trader Reports with the CFTC, and these trades are exempt from routine CFTC oversight
September 16th, 2008 at 9:01 pm
For full disclosure…
Art’s comment are direct quotes from this column by Henry Banta and a 2006 US Senate Permanent Subcommittee on Investigations report on “The Role of Market Speculation in rising oil and gas prices.”
September 17th, 2008 at 9:15 am
My bad. Did not mean to imply otherwise. I just wonder if the speculation that has been getting the blame for rising oil prices since 2005 is due in part to trading that is beyond the scope of the CFTC and, therefore, not addressed in their report.