Thursday, September 25, 2008

Recent Activity On The Oil Commodity Market Speculation Issue

Sep 25: On September 18, the U.S. House of Representatives passed the Commodity Markets Transparency and Accountability Act of 2008 (H.R. 6604) introduced by Representative Collin Peterson (D-MN), Chairman of the House Agricultural Committee [See WIMS 9/18/08]. The bill passed the House by a vote of 283 to 133, and was transmitted to the Senate on September 22. In July, Republican and Democratic Senators engaged in a heated debate on the issue of energy price speculation v. energy supply when Democrats put forth their Stop Excessive Energy Speculation Act (S. 3268) which failed to pass [See WIMS 7/24/08]. The legislation is now back in the hands of the Senate and it remains to be seen if Senators will deal with the issue in light of the Wall Street bailout concerns and limited legislative time.

On September 22, the same day the Senate received H.R. 6604, the Air Transport Association (ATA), the industry trade organization for the major U.S. airlines, reacted to oil's largest one-day price gain in NYMEX history, stating that "this record increase reaffirms that speculation is playing a significant role in driving up the price." On the 22nd, reversing recent price decreases, oil spiked at $130 per barrel, closing at $120.92 per barrel. ATA said, it "recognizes the impact of the financial crisis on Wall Street, the weak dollar and the aftermath of Hurricane Ike, the unprecedented 16 percent jump over the weekend -- from $104.55 per barrel last Friday to $120.92 per barrel today -- also reflects the impact of excessive energy speculation."

Also on the 22nd, as part of its ongoing national crude oil investigation, the Commodity Futures Trading Commission (CFTC) issued a statement regarding the oil market activity. CFTC Acting Chairman Walter Lukken said, “CFTC surveillance and enforcement staff are closely monitoring today’s large movement in the price of crude oil. We are working closely with NYMEX compliance staff to ensure that no one is taking advantage of the current stresses facing our financial marketplace for their own manipulative gain.”

Stephen J. Obie, Acting Director of the CFTC’s Division of Enforcement added, “CFTC enforcement staff will scour today’s trading activity to determine whether anyone engaged in illegal manipulative activity. No one should be trying to game our nation’s commodity futures markets.” CFTC said as part of its investigation, enforcement staff can compel testimony, under oath, and the production of information concerning the crude oil markets, including recent crude oil trading. On September 23, various media reports indicated that CFTC had "subpoenaed dozens of traders as it probes why a Nymex oil contract rose the most ever yesterday. . ."

Senate Republicans remain skeptical about the effects of speculation on oil prices. Retiring Senator Pete Domenici, Ranking Member of the Senate Energy and Natural Resources (ENR) Committee and a key Republican leader on energy issues said at September 16, hearing on the speculation issue, “I have yet to see any credible reports that speculators are manipulating the markets to drive prices up in a substantial way. In fact, I would note that now that prices have come down, the rhetoric from Democrats seems to have quieted, too, except for this hearing. It is obvious to me—and most experts—that the rise in prices we have seen this summer is a direct result of a global supply and demand imbalance, and the way to correct it is by addressing that fundamental problem.”

The hearing was held to examine two separate and conflicting reports on the speculation issue. The first report, the CFTC’s staff report on swap dealers and index traders, represents an unprecedented effort to measure what is happening in our commodity markets revealed very little evidence of speculation, and Domenici said "certainly not enough to significantly affect the price of oil." Domenici continued saying, "The second report, from Mr. Masters, concludes that speculation is a significant influence on the price of oil. The accuracy of this claim has already been called into question, most notably by the man who generated the data used to construct it."

Access the release from the CFTC (click here). Access the ATA release on the oil market (click here). Access Senator Domenici's statement at the speculation hearing (click here). Access the ENR Sep. 16 Subcommittee hearing on oil speculation and link to all testimony and a webcast (click here). Access a release and link to the complete 48-page CFTC report (click here). Access the so-called "Masters" reports and related information from the Accidental Hunt Brothers Blog (click here). Access legislative details for H.R. 6604 (click here). Access legislative details for S. 3268 (click here). Access background information on the Energy and Commerce investigation of the Energy Speculation issue (click here). Access the Stop Oil Speculation Now blog for additional information (click here). [*Energy]