Commodity Futures Trading Commission Report on Oil Prices - It's not Speculation

Commodity Futures Trading Commission Report on Oil Prices - It's not Speculation

www.cftc.gov

The imbalance between scarce supply and growing demand, and expectations that this imbalance will persist in the future, have led to upward pressure on oil prices and greater market reactions to any actual or perceived disruptions in available supply.

Non-public CFTC trading data shows that commodity swap dealers have held roughly balanced long and short positions in the crude oil markets over the last year and actually held a net short position over the first five months of 2008 – that is, swap dealers’ futures positions would have benefited more from price decreases than from price increases like the ones experienced in the last few months. Moreover, any pressure exerted by the long positions of swap dealers’ commodity index clients has largely been offset by the short positions of the dealers’ other clients.

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The Commodity Futures Trading Commission (CFTC) released a report stating that speculation was not the cause of high oil prices. The cause it seems is that, brace yourself, supply is not keeping up with demand. Despite a surging world economy, oil production growth is tapering off and stalling. The result of higher demand with stagnant supply of course results in higher prices for any commodity.

Moreover, if speculative positions, rather than fundamentals, were pushing prices upward, then inventories would be expected to rise. To date, there is no evidence of such an accumulation; in fact, known inventory levels actually have declined.

Speculators are shorting oil more than they are long on oil. They would have profited more if oil prices would have kept falling. The myth that speculation is driving the price is further disproved by the fact that inventory levels are falling out of what's considered normal. Less inventory means less flexability so any news of a missile fired in an oil producing region will naturally drive up the price.

Argue with the facts all you want, but the CFTC has access to information that is not available to the public. Review the report and see for yourself. It's full of lots of pretty graphs and charts and it's actually not a bad read.

www.cftc.gov
(visit the link for the full news article)