I knew they would find it....after the fact.
Speculators in `dark markets' may have driven oil up | Business | Chron.com - Houston Chronicle
New focus on speculation
Report points to influence of 'dark markets' on oil price spike
By KEVIN G. HALL Mcclatchy-tribune
Sept. 10, 2008, 10:23PM
WASHINGTON — Federal regulators have uncovered evidence that oil speculators operating in unregulated "dark markets" may have helped drive the price of oil to record highs this year.
The Commodity Futures Trading Commission is expected to issue a long-awaited report before Monday, perhaps today, on what role oil speculators played in the 50 percent rise in oil prices earlier this year. The report isn't expected to declare that speculators are the main cause of the price rise, a conclusion the agency rejected in an interim report in July.
One CFTC commissioner, Michael Dunn, signaled last week that the report would be inconclusive, noting, "I doubt it is possible to come up with a definitive answer one way or another at this time" about the role of speculators.
However, unregulated markets account for two-thirds of oil trading on financial markets, and they could be used to manipulate prices on regulated exchanges that account for the remaining trading.
The finding that some speculators exceeded positions allowed in regulated markets is sure to spark debate about how much the CFTC knows about the markets it regulates, whether more stringent reporting requirements are needed, and whether the government should require more disclosure from speculators and banks.
It's not entirely clear how the CFTC, which is under heavy criticism from Congress, will portray its findings about the large dark-market positions in the much-anticipated report. The agency's interim report said it thought that the soaring oil prices earlier this year were due to underlying fundamentals of supply and demand.
Acting CFTC Chairman Walter Lukken is scheduled to testify today before a House committee.
After the interim report was released in July, he was mocked by Sen. Byron Dorgan, D-N.D., who questioned the report's timing ahead of an expected congressional vote on energy legislation.
On Wednesday, timing again was an issue as Dorgan called a news conference to present a report ahead of the CFTC's.
His report came from hedge fund manager Michael Masters, who alleges that oil speculators were almost completely responsible for the run-up in oil prices — and their recent decline.
"We have a brain-dead regulator here ... content to do nothing," Dorgan said.
The CFTC declined comment.
The report from Masters and his partner, Adam White, uses CFTC data to conclude that from January through the end of May, index investors pumped $60 billion into major commodity indexes, and oil prices rose $33 a barrel.
Beginning on July 15, a sell-off of these commodities began, resulting in about $39 billion pulled out, and a $29-per-barrel drop in oil prices.
"Clearly what affects prices is money. Money came in and money went out," Masters told reporters, saying that prices moved not on supply-and-demand fundamentals, but by investors' decisions.
That view was challenged by the Smart Energy Policy Coalition, a group that represents the futures industry and commodities dealer trade associations.
In late May, the CFTC announced that it was, for the first time, using its so-called special call authority to demand that traders show their positions in a complicated, unregulated parallel market called the over-the-counter swaps market.
Specifically, the agency is looking into swap dealers, who enter into complex private contracts for oil sales away from the peering eyes of regulators.
Some of the speculators doing business with swap dealers — who generally are large investment banks such as Goldman Sachs and Morgan Stanley — have built positions that would be prohibited in regulated futures markets.
Swap dealers are exempt from position limits because they enter into private contracts in the over-the-counter market, and then hedge the risks from those contracts in the regulated futures market.
Regulators know what swap dealers' positions are in regulated markets, but they have far less information about who's on the other end of a swap deal.