Shocker: Federal Regulators Conclude That Oil Speculators Not Responsible For High Gas Prices

• September 15, 2008

The Commodity Futures Trading Commission has released financial data indicating that commodities traders engaged in oil speculation have had little impact on oil prices (if anything they’ve driven prices down), much to the chagrin of Washington politicians on both sides of the aisle who thought they’d found the perfect scapegoat for high gas prices.

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.
Commodity index funds also have a much smaller share of the oil market than everyone thought: just 13%. Even if the figure was 70% or more, as some assumed, it wouldn’t have mattered. In a futures exchange, trades are matched, so one trader’s gain is another’s loss. The overall volume is irrelevant.

This data comes at an inconvenient time for certain members of Congress, including Senator Byron Dorgan from my home state of North Dakota:

…the CFTC report arrived just as the Moe, Larry and Curley of the antispeculation show — Senators Byron Dorgan and Maria Cantwell, and Michigan Democrat Bart Stupak — pre-emptively released their own study, by Virgin Islands fund manager Michael Masters, which purports to show “index speculators” are “now the single most dominant force in the commodities futures market.” Bad political timing, folks.

Nyuk, nyuk, nyuk.

Tags: Asshats, North Dakota News, Politics, The Loony Left

http://www.bikebubba.blogspot.com/ Bike Bubba

Heads of state of multiple nations coming together a few times per year to control the amount of petroleum they produce and allocate quotas by nation, is not a conspiracy? My friend, that is the very definition that Adam Smith was using when he noted that two artisans of any given craft can hardly have a drink together without some conspiracy being launched against the consumer.

Yes, the word is on hard times ever since Robert Welch started using the term recklessly in his John Birch Society newsletters, but there are real conspiracies in this world, and OPEC is one of those most easily demonstrated.

Now Congress may not be a conspiracy to prevent production, but when we’ve got innumerable “environmental” organizations working together to prevent us from using our own oil, and an entire party working with them, it’s awfully close to a conspiracy.
docdave

Free enterprise requires a significant number of free competitors. The fewer the competitors the more monopolistic a given market becomes. This is true for any product or commodity. Inelasticity (demand does not change with price) also contributes to product price insensitivity.
robert108

You have multiple cartels–like OPEC and our own government in Washington–who conspire together to drive the supply curve down through monopoly power and regulation.

BB: As much as that concept has emotional appeal, it’s not a conspiracy. The fact that the US announced about thirty years ago that we would no longer be anything more than a consumer in the oil market placed the power in the hands of unstable terrorist nations, for the most part, which creates expectations of long term instability. The fact that the US is now announcing that we intend to re-enter the market as a producer has eliminated a lot of that expectation of instability, with the resulting reduction in futures prices.
The expected future of supply has changed radically with President Bush’s rescinding the Executive ban on domestic development, and the anticipated expiration of the Congressional ban on domestic development. The political climate will make it very difficult for the Dems to continue with their policy of energy development obstructionism.
http://ndgoon.blogspot.com/ goon

Nice picture of Dorganoff… :0
Eddie_the_Hated

So then, the spike is attributed to post-hurricane consumer panic? The article didn’t explain what they felt the driving factor was.
robert108

Now Congress may not be a conspiracy to prevent production, but when we’ve got innumerable “environmental” organizations working together to prevent us from using our own oil, and an entire party working with them, it’s
awfully close to a conspiracy.

Commonality of purpose does not require a “conspiracy”.

I don’t think all lefties are involved in a conspiracy; they are united by a single ideology: Marxism, which leads them all to come to the same conclusions; meetings are unnecessary.
OPEC is an attempt to counter the former power of the US as a supplier of oil. The fact that the Dems have caused us to abandon the field for thirty years has vastly increased the power of OPEC. That is the problem, not any real or imagined “conspiracy”.
http://ndgoon.blogspot.com/ goon

Great point Gene, I think the fact that there was a drop in the price of a barrel of oil and we just had a Hurricane proves this articles point. If the speculators were so evil the price of Oil would have shot up just before the Hurricane hit Texas…
http://www.bikebubba.blogspot.com/ Bike Bubba

The driving factor for oil prices is very simple. You have multiple cartels–like OPEC and our own government in Washington–who conspire together to drive the supply curve down through monopoly power and regulation. You have robust demand here and in Asia for the product.

Econ 101; what do you think is going to happen in this market when the demand curve is steep (does not respond well to price, inelastic) and the supply curve is also very steep? You have a recipe for price spikes and troughs.

Actually, the real reason that the price of petroleum is tanking (pun intended) right now is that I rode my bike to work today instead of driving my truck. :^)
http://northerngleaner.blogspot.com/ Gene

The oil price collapse we are seeing right now (I speak as a speculator) is not a good orderly decline (not trading about 95)

It means that at some point in the near future we will have a run up to the 115 mark again.

Then if it holds there and declines again to the level it is at right now we have a real oil bust.

Markets don’t like precipitous drops. This is precipitous.

Just thought you would enjoy a Speculators viewpoint.
http://sayanythingblog.com robport

Markets don’t like precipitous drops. This is precipitous.

Just thought you would enjoy a Speculators viewpoint.

What’s interesting is that the very thing that may be driving a lot of this volatility is probably the political rhetoric about speculators.

How confident would you be in your investments if there was the looming threat of punishing political action?

SayAnythingBlog.com

Shocker: Federal Regulators Conclude That Oil Speculators Not Responsible For High Gas Prices

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