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Speculation-but Not Manipulation
Moira Herbst, Business Week
Increased trading in oil futures has helped push up prices. So far, though, there’s no evidence of hoarding
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… When oil jumps as much as it has, doubling since May, 2007, it’s natural to assume that something striking must have changed. Some say the world is running out of the stuff; others blame market manipulation. The search for a culprit is understandable.
But persuasive evidence of manipulation by traders is, so far, lacking. Speculation-placing bets on future prices-is another matter. There’s plenty of that, and it’s generally legal. In fact, there’s a good argument, if not conclusive proof, that sharply escalated trading in oil futures has contributed to price increases. But it’s important to remember that the nature of the oil market-specifically, the extreme inflexibility in both supply and demand-is amplifying whatever influence traders exert on prices.
For there to be real manipulation, financiers somewhere would have to hold substantial amounts of oil off the market, planning to unload it in the future.
(29 May 2008)
Regulators Step Up Probes Of Trading in Oil Markets
Ian Talley, Ann Davis and Gregory Meyer, Wall Street Journal
U.S. regulators disclosed a broad nationwide probe into potential oil-market manipulation and said they are expanding surveillance of energy markets.
The move Thursday by the Commodity Futures Trading Commission, including its unusual announcement of an investigation in progress, comes after crude-oil prices topped $130 a barrel last week and tested all-time highs. On Thursday, light, sweet crude for July delivery settled $4.41, or 3.4%, lower at $126.62 a barrel on the New York Mercantile Exchange.
Lawmakers in Congress have been pressing regulators to crack down on manipulation, as politicians seek to demonstrate ahead of the fall elections that they are …
(30 May 2008)
Related from Reuters: U.S. oil probe focusing on price manipulation: report
Commodity Policies Set for Revision
Diana B. Henriques, New York Times
The chief regulator of the nation’s commodity markets will unveil early next week a set of policy changes to address public and political concerns that market malfunctions may be contributing to rising food and energy prices, according to people who have been briefed about the agency’s plans.
The new regulatory steps will be announced by the Commodity Futures Trading Commission, which oversees exchanges that play a central role in establishing worldwide prices for commodities ranging from corn to crude oil.
… The agency has been wrestling for more than a year over farm industry demands that it examine the role that new financial investors are having in the futures markets, especially those who are investing through commodity index funds.
As commodity prices have risen over the last several years, these funds have become an increasingly large player in the commodity futures markets, rising from a stake of roughly $13 billion in 2003 to an estimated $250 billion this year.
Unlike traditional commodity investors or balanced hedge funds, these index funds do not both buy and sell commodity futures – they only buy, reflecting investors’ desire for a stake in a rising market.
(31 May 2008)
U.S. Regulators Push to Strengthen Oversight of Energy Markets
Jad Mouawad, New York Times
Faced with enormous political pressure to tighten the oversight of energy trading, federal regulators said Thursday that they have been investigating oil and derivative markets for six months to look into potential price manipulation.
The revelation came as the agency, the Commodity Futures Trading Commission, also announced a series of measures intended to heighten regulatory supervision of energy trading and bring “greater sunshine” into the commodities markets.
The commission, which does not typically disclose ongoing investigations, said that since December 2007 it had been conducting a nationwide inquiry of “practices surrounding the purchase, transportation, storage and trading” of oil contracts. It did not say whom it was investigating, nor did it say when it expected the investigation to be completed.
The commission seems keen to address concerns raised in Congress this year that oil prices have been somehow artificially lifted by investors’ enthusiasm for energy commodities.
(30 May 2008)
Oil Traders Reduced Bets on Rising Prices as Crude Hit Records
Robert Tuttle, Bloomberg
Hedge-fund managers and other large speculators have reduced bets on higher oil prices by 80 percent in the past 10 months, a time when crude futures rose to records, government data show.
Speculative net long positions in crude, derived by subtracting shorts, or bets on falling prices, from bets on higher prices, fell to 25,867 in the week ended May 27 from a record 127,491 on July 31, a U.S. Commodity Futures Trading Commission report yesterday showed.
The report came a day after the commission said it was investigating whether the doubling of oil prices over the past year was the result of market manipulation.
“There is good reason why prices are high, and it’s driven by fundamentals,” said Paul Tossetti, director of oil market analysis at PFC Energy in Dallas. “When you look at the number of players, the number of open positions, I don’t know how anybody can manipulate anything.”
(31 May 2008)
After US attack over oil price, traders and commodity exchanges fight back
Peter Stiff, Suzy Jagger and Robin Pagnamenta; UK Times
Washington’s move to clamp down on oil speculators has triggered an angry backlash from traders and commodity exchanges, which have accused the United States of branding them scapegoats for the high price of oil.
The American futures market regulator, the Commodity Futures Trading Commission (CFTC), said this week that it was investigating whether some traders had tried to manipulate the oil price.
… Yesterday, however, traders, oil company executives and exchanges on both sides of the Atlantic accused Washington of blaming the oil market for the soaring price of crude, which breached $135 a barrel this month.
Phil Flynn, a trader with Alaron Trading in Chicago, said: “When the CFTC spoke to Congress a few weeks ago they said there wasn’t any manipulation in the market and that market dynamics were driving the price. Two weeks later, after pressure from Washington, they have changed their minds. I am concerned that politicians are under such pressure that they will come up with some damaging regulation to try to heal a problem that does not exist.”
(31 May 2008)
