Back in March, the Commodity Futures Trading Commission, which is charged with policing the nation’s commodity markets, said that energy speculation, including speculation in the oil markets, was at an all-time high. According to many analysts, rampant speculation was responsible for the 2008 spike in oil prices, while Goldman Sachs analysts calculated that speculation was adding $27 per barrel to the cost of oil just last month.
McClatchy today examined how much has changed in the oil market over the last few decades, and found that, in 1990, oil speculators made up less than one-third of the oil market, but are edging close to 70 percent of the market today:
A McClatchy review of two decades of data compiled by the CFTC documents the boom in speculative trading amid rising prices. In the 1990s, the ratio of speculative trades to trades made by commercial users of oil was tilted heavily toward users of crude. But from 1991 forward, the big financial players such as Goldman Sachs and J.P. Morgan Chase won exemptions that freed them from limits on how much they could speculate in futures markets…Prior to the 1990s, speculators made up about 30 percent of the futures market. In the latest reporting period, the ratio on May 3 stood at 68 percent speculators to 32 percent users of oil. Meanwhile, the volume of total reported trades has grown five-fold since 1995, underscoring the impact of speculation on futures markets.
The upshot is that supply and demand has not governed the recent run-up in oil prices. Even ExxonMobil CEO Rex Tillerson admitted as much last week, saying that purely supply and demand would suggest oil prices closer to $60 or $70 dollars per barrel.
As we’ve been documenting, the CFTC already has the authority to limit speculative positions in the oil market, due to the Dodd-Frank financial reform law, but the agency keeps punting the implementation of those rules down the road. Senate Republicans blocked development of similar rules in July 2008. A poll released last week shows that 90 percent of Americans believe oil speculators deserve some blame for the recent increase in gas prices.