Wednesday, September 17, 2008

Study Shows Speculators Helped LOWER Oil Prices

It was said to be the year of speculators gone wild. Seemingly everyone in Washington, including Barack Obama and John McCain, decided that oil prices were soaring because profiteers and middlemen were manipulating the futures markets. "Speculators" were spotted everywhere this side of the grassy knoll.

The only problem is that there's no evidence to support the conspiracy theories -- and sure enough, federal regulators dismantled this Beltway consensus late last week. 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.

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.


Wall Street Journal editorial

Thanks to Wesley Barnett for the pointer

11 Comments:

At 9/17/2008 11:53 AM, Anonymous Anonymous said...

How ya feelin' about your Pollyannaish babble now? You and Kudlow must be wondering why the market is tanking when everything is so rosy.

Hmmmm....

Welcome to the Bailout States of America!

 
At 9/17/2008 12:29 PM, Anonymous QT said...

Where is that $250.00 a barrel oil we were promised?

 
At 9/17/2008 12:37 PM, Anonymous Anonymous said...

Hey frat boy our financial system is imploding arid it's ankles, it's called de-leveraging as the shadow banking system goes boom. that kind of means all asset price fall even oil.

 
At 9/17/2008 12:56 PM, Blogger juandos said...

"How ya feelin' about your Pollyannaish babble now? You and Kudlow must be wondering why the market is tanking when everything is so rosy"...

Have you thanked Rep. Barney Frank yet?

"Welcome to the Bailout States of America!"...

Have you thanked the Democrat Party yet?

 
At 9/17/2008 3:09 PM, Anonymous Anonymous said...

QT said...
Where is that $250.00 a barrel oil we were promised?


*crickets*

 
At 9/17/2008 4:18 PM, Anonymous QT said...

"frat boy"

I didn't know that CD was required reading for middle school students. Learn something every day.

 
At 9/17/2008 8:49 PM, Anonymous Anonymous said...

"Lack of a pro-active stance could have resulted in further financial stress and put pressure on the U.S. triple-A rating," Chambers said. "There's no God-given gift of a 'AAA' rating, and the U.S. has to earn it like everyone else."

The cost of insuring 10-year U.S. Treasury debt against default rose on Wednesday to a record high, a day after the government rescued insurer AIG with an $85 billion loan. At one time, AIG was the world's largest insurer, ranked by market value. At midday on Wednesday, AIG's stock was down 33 percent at $2.50 on the New York Stock Exchange.

http://www.reuters.com/article/idUKN1752966920080917

There is a train coming down the track and it is headed straight for this Banana republic. Choo-Choo

 
At 9/17/2008 8:58 PM, Blogger juandos said...

"There is a train coming down the track and it is headed straight for this Banana republic. Choo-Choo"...

Hmmm, got something credible besides the always questionable Reuters?

 
At 9/17/2008 9:23 PM, Anonymous sam said...

i think you should look at the original reports conclusions and recommendations :"this survey is not able to accurrately answer and quantify the amount of speculative trading occurring in the futures markets."http://www.cftc.gov/stellent/groups/public/@newsroom/documents/file/cftcstaffreportonswapdealers09.pdf the wallstreet jounal should be ashamed.

 
At 9/17/2008 10:40 PM, Anonymous Qt said...

Sam,

Have to take your word on that since the link did not work. Always good to check the fine print.

 
At 9/29/2008 3:53 PM, Anonymous Anonymous said...

Sam,
The paragraph continued: "The current data received by the CFTC classifies positions by entity (commercial versus noncommercial) and not by trading activity (speculation versus hedging)."
In other words, they were not looking specifically for that info.

 

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