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Finance & Stock Groups Forum Index » Stock Investments » A Few Speculators Dominate Vast Market for Oil Trading
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| Mr Bubble |
 Posted: Fri Aug 22, 2008 1:17 am |
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http://tinyurl.com/5ov9d4
A Few Speculators Dominate Vast Market for Oil Trading
By David Cho
Washington Post Staff Writer
Thursday, August 21, 2008; A01
Regulators had long classified a private Swiss energy conglomerate called
Vitol as a trader that primarily helped industrial firms that needed oil
to run their businesses.
But when the Commodity Futures Trading Commission examined Vitol's books
last month, it found that the firm was in fact more of a speculator,
holding oil contracts as a profit-making investment rather than a means
of lining up the actual delivery of fuel. Even more surprising to the
commodities markets was the massive size of Vitol's portfolio -- at one
point in July, the firm held 11 percent of all the oil contracts on the
regulated New York Mercantile Exchange.
The discovery revealed how an individual financial player had gained
enormous sway over the oil market without the knowledge of regulators.
Other CFTC data showed that a significant amount of trading activity was
concentrated in the hands of just a few speculators.
The CFTC, which learned about the nature of Vitol's activities only after
making an unusual request for data from the firm, now reports that
financial firms speculating for their clients or for themselves account
for about 81 percent of the oil contracts on NYMEX, a far bigger share
than had previously been stated by the agency. That figure may rise in
coming weeks as the CFTC checks the status of other big traders.
Some lawmakers have blamed these firms for the volatility of oil prices,
including the tremendous run-up that peaked earlier in the summer.
"It is now evident that speculators in the energy futures markets play a
much larger role than previously thought, and it is now even harder to
accept the agency's laughable assertion that excessive speculation has
not contributed to rising energy prices," said Rep. John D. Dingell (D-
Mich.). He added that it was "difficult to comprehend how the CFTC would
allow a trader" to acquire such a large oil inventory "and not scrutinize
this position any sooner."
The CFTC, which refrains from naming specific traders in its reports, did
not publicly identify Vitol.
The agency's report showed only the size of the holdings of an unnamed
trader. Vitol's identity as that trader was confirmed by two industry
sources with direct knowledge of the matter.
CFTC documents show Vitol was one of the most active traders of oil on
NYMEX as prices reached record levels. By June 6, for instance, Vitol had
acquired a huge holding in oil contracts, betting prices would rise. The
contracts were equal to 57.7 million barrels of oil -- about three times
the amount the United States consumes daily. That day, the price of oil
spiked $11 to settle at $138.54. Oil prices eventually peaked at $147.27
a barrel on July 11 before falling back to settle at $114.98 yesterday.
The documents do not say how much Vitol put down to acquire this
position, but under NYMEX rules, the down payment could have been as
little as $1 billion, with the company borrowing the rest.
The biggest players on the commodity exchanges often operate as "swap
dealers" who primarily invest on behalf of hedge funds, wealthy
individuals and pension funds, allowing these investors to enjoy returns
without having to buy an actual contract for oil or other goods. Some
dealers also manage commodity trading for commercial firms.
To build up the vast holdings this practice entails, some swap dealers
have maneuvered behind the scenes, exploiting their political influence
and gaps in oversight to gain exemptions from regulatory limits and
permission to set up new, unregulated markets. Many big traders are
active not only on NYMEX but also on private and overseas markets beyond
the CFTC's purview. These openings have given the firms nearly unfettered
access to the trading of vital goods, including oil, cotton and corn.
Using swap dealers as middlemen, investment funds have poured into the
commodity markets, raising their holdings to $260 billion this year from
$13 billion in 2003. During that same period, the price of crude oil rose
unabated every year.
CFTC data show that at the end of July, just four swap dealers held one-
third of all NYMEX oil contracts that bet prices would increase. Dealers
make trades that forecast prices will either rise or fall. Energy
analysts say these data are evidence of the concentration of power in the
markets.
..............more at link |
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| Mike |
| Posted: Fri Aug 22, 2008 5:34 pm |
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Guest
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On Thu, 21 Aug 2008 21:17:44 +0000, Mr Bubble wrote:
Quote: http://tinyurl.com/5ov9d4
A Few Speculators Dominate Vast Market for Oil Trading
By David Cho
Washington Post Staff Writer
Thursday, August 21, 2008; A01
Regulators had long classified a private Swiss energy conglomerate
called Vitol as a trader that primarily helped industrial firms that
needed oil to run their businesses.
But when the Commodity Futures Trading Commission examined Vitol's books
last month, it found that the firm was in fact more of a speculator,
holding oil contracts as a profit-making investment rather than a means
of lining up the actual delivery of fuel. Even more surprising to the
commodities markets was the massive size of Vitol's portfolio -- at one
point in July, the firm held 11 percent of all the oil contracts on the
regulated New York Mercantile Exchange.
The discovery revealed how an individual financial player had gained
enormous sway over the oil market without the knowledge of regulators.
Other CFTC data showed that a significant amount of trading activity was
concentrated in the hands of just a few speculators.
The CFTC, which learned about the nature of Vitol's activities only
after making an unusual request for data from the firm, now reports that
financial firms speculating for their clients or for themselves account
for about 81 percent of the oil contracts on NYMEX, a far bigger share
than had previously been stated by the agency. That figure may rise in
coming weeks as the CFTC checks the status of other big traders.
is it just me or does anyone else see what's wrong with this picture?
what do you think will happen when they find that almost all of the
futures contracts are held by speculators that have no intention of
taking delivery of oil? those contracts will be about as liquid as cdo's
excellent article, by the way, mr. bubble |
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