Alex Constantine - September 17, 2008
The task force interim report concludes, contrary to status quo media buck passing:
"Observed increases in the speculative activity and the number of traders in the crude oil futures market do not appear to have systematically affected prices."
"Systematically," BUT price oil price manipulations DO occur:
CFTC Sues Oil Price Manipulator
Lots of reader feedback to Thursday's Philly Inc. column on curbing oil speculators. In fact, I'd have to say none of the dozen or so e-mails I've gotten brings up the same issue.
And that's why oil is such a fascinating industry. It's impossible to separate the politics from the business aspects of it. And there are enough economists, geologists, chemists, environmentalists, financiers, national security experts and flat-out alarmists to vigorously advocate any number of points of view.
I have two things to update on oil speculation.
First, the Commodity Futures Trading Commission today filed suit in federal court in Manhattan against a Dutch trading firm alleging it manipulated energy futures contracts several times during March 2007. The complaint says that Optiver Holding BV and the other defendants profited by about $1 million from their scheme.
So the cop on the beat of the futures markets is watching for price manipulation. Several commenters made it sound as if futures markets were unregulated.
Second, we mentioned a report in a story on the Senate vote on the oil speculation bill Wednesday, but I thought I should post a link to it. The CFTC led a task force studying the correlation between the rise of oil prices and the increase in speculative activity in the futures market. It's worth reading the interim report, because the task force found:
Observed increases in the speculative activity and the number of traders in the crude oil futures market do not appear to have systematically affected prices.
Outright manipulation is wrong and needs to be policed. But speculation is not always a bad thing. The academics and other deep thinkers on these securities say they help greatly with "price discovery." As each investor acts on information he or she has, the accumulation of pricing gives businesses a better idea of what the market perceives is the value of oil.
Speculative bubbles are inevitable, and I think are probably unavoidable. We'll all chase that hot stock, hot condo, and hot oil futures contract long after reason tells us we're probably overpaying.