CFTC Report: Speculators Not To Blame for Oil Prices

7/23/2008

Pro Farmer Editors

A preliminary report by the Commodity Futures Trading Commission (CFTC) reaches the conclusion that speculative trading has not been behind the increase in oil prices. However, not all agree with the conclusion of this interim report.

"Current oil prices and the increase in oil prices between January 2003 and June 2008 are largely due to fundamental supply and demand factors," the report by the Interagency Task Force on Commodity Markets stated.

While there has been an increase in trading activity during the period looked at by the panel, the report said, "preliminary analysis to date does not support the proposition that speculative activity has systematically driven changes in oil prices."

"If a group of market participants has systematically driven prices, detailed daily position data should show that that group’s position changes preceded price changes," the reported noted. "On the contrary, most speculative traders typically alter their positions following price changes, suggesting that they are responding to new information – just as one would expect in an efficiently operating market."

"The recent upward surge in the price of crude oil has significantly affected American consumers and businesses," CFTC Chief Economist Jeffrey Harris stated. Harris, who chairs the Task Force, also noted, "We hope that it will serve as a useful resource concerning the crude oil market and will contribute to the public discussion of important energy market issues."

But CFTC Commissioner Bart Chilton said, "The simple fact remains that there is nearly $250 billion in America's commodity futures markets that wasn't there just a few years ago, held primarily by non-traditional long investors. There has got to be, to some degree, impact from this significant new influx of trading."

While a final report is due in September, the CFTC noted, "Given the importance and timeliness of their research efforts in the crude oil market, the ITF is issuing an interim staff report limited to the crude oil market."

The Interagency Task Force on Commodity Markets began its investigation in June, consisting of staff from the Departments of Agriculture, Energy and the Treasury, the Board of Governors of the Federal Reserve, the Federal Trade Commission, and the Securities and Exchange Commission.

Here's a link to read the full report (PDF).

agweb.com