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Sunday 14 September 2008
Report casts doubt on speculators’ role in high oil prices
Conventional wisdom in Washington holds that speculative money flooding into the market from index funds pushed up oil prices this year More in comments... View PDF
Report casts doubt on speculators’ role in high oil prices
By Diana B. Henriques 12 September 2008
NEW YORK: Conventional wisdom in Washington holds that speculative money flooding into the market from index funds pushed up oil prices this year.
But a regulatory report released Thursday shows that those funds actually were cutting their stake in the oil market as prices were soaring.
That information, based on private trading data gathered by market regulators, contradicts parts of a report released by lawmakers in Washington on Wednesday.
That earlier report, by Michael Masters and Alan White, blamed high commodity prices on the growing role of institutional investors, specifically index funds. It was cited by several lawmakers as proof that new rules were needed to curb the impact of speculation on commodity prices.
But the new 69-page study, by the Commodity Futures Trading Commission, shows that, rather than rising, the stake of index funds in the oil market actually declined in the first half of this year.
“That certainly doesn’t mesh with the story Mr. Masters is telling,” said Dwight Sanders, an agricultural economist at Southern Illinois University in Carbondale, who has studied both reports.
The dollar value of those fund positions did rise, to $51 billion from about $39 billion, according to the CFTC study. But the increase reflects only the impact of rising oil prices - not the flow of new money into the market, the report found.
When counted in terms of separate futures contracts, the funds’ stake fell 11 percent during that period, to 363,000 contracts from 408,000 contracts, according to the study.
The study also showed that index funds have a much smaller share of the market than previously estimated - 17 percent of all futures and options involving domestically traded commodities, as of June 30.
Their net stake in oil markets was just 13 percent, not the 70 percent or more cited in previous estimates.
Masters, a hedge fund manager who has frequently testified before Congress, said in an e-mail message Thursday that he was “delving into the numbers” in the new CFTC report “to understand what they do and do not encompass.” He said he hoped to have more to say when he testified on Tuesday before a Senate energy subcommittee.
The commission has come under withering criticism this summer, accused of failing to curtail excessive speculation in commodity markets. But legislation aimed at limiting institutional commodity investments has stalled.
The CFTC report does offer some support for the agency’s critics. The commission found that on about three dozen occasions, none involving illegal trading, the total stake of 18 commercial traders exceeded regulatory limits or guidelines when their over-the-counter swaps positions were added to their stake on public exchanges.
And the commission acknowledged that it needed better tools for measuring market activity, especially in the swaps market.
It is recommending several changes, including new disclosure rules for swaps dealers and the creation of a new office of data collection.
It also called for a substantial increase in agency staff and resources to handle these expanded data-gathering duties.
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Report casts doubt on speculators’ role in high oil prices
By Diana B. Henriques
12 September 2008
NEW YORK: Conventional wisdom in Washington holds that speculative money flooding into the market from index funds pushed up oil prices this year.
But a regulatory report released Thursday shows that those funds actually were cutting their stake in the oil market as prices were soaring.
That information, based on private trading data gathered by market regulators, contradicts parts of a report released by lawmakers in Washington on Wednesday.
That earlier report, by Michael Masters and Alan White, blamed high commodity prices on the growing role of institutional investors, specifically index funds. It was cited by several lawmakers as proof that new rules were needed to curb the impact of speculation on commodity prices.
But the new 69-page study, by the Commodity Futures Trading Commission, shows that, rather than rising, the stake of index funds in the oil market actually declined in the first half of this year.
“That certainly doesn’t mesh with the story Mr. Masters is telling,” said Dwight Sanders, an agricultural economist at Southern Illinois University in Carbondale, who has studied both reports.
The dollar value of those fund positions did rise, to $51 billion from about $39 billion, according to the CFTC study. But the increase reflects only the impact of rising oil prices - not the flow of new money into the market, the report found.
When counted in terms of separate futures contracts, the funds’ stake fell 11 percent during that period, to 363,000 contracts from 408,000 contracts, according to the study.
The study also showed that index funds have a much smaller share of the market than previously estimated - 17 percent of all futures and options involving domestically traded commodities, as of June 30.
Their net stake in oil markets was just 13 percent, not the 70 percent or more cited in previous estimates.
Masters, a hedge fund manager who has frequently testified before Congress, said in an e-mail message Thursday that he was “delving into the numbers” in the new CFTC report “to understand what they do and do not encompass.” He said he hoped to have more to say when he testified on Tuesday before a Senate energy subcommittee.
The commission has come under withering criticism this summer, accused of failing to curtail excessive speculation in commodity markets. But legislation aimed at limiting institutional commodity investments has stalled.
The CFTC report does offer some support for the agency’s critics. The commission found that on about three dozen occasions, none involving illegal trading, the total stake of 18 commercial traders exceeded regulatory limits or guidelines when their over-the-counter swaps positions were added to their stake on public exchanges.
And the commission acknowledged that it needed better tools for measuring market activity, especially in the swaps market.
It is recommending several changes, including new disclosure rules for swaps dealers and the creation of a new office of data collection.
It also called for a substantial increase in agency staff and resources to handle these expanded data-gathering duties.
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