This week, Commissioner Bart Chilton of the Commodity Futures Trading Commission — the federal agency charged with overseeing the nation’s commodities markets — said that consumers are paying a “Wall Street speculative premium” at the gas pump. “I think there’s good evidence that excessive speculation is heating up the market and prices have gotten out of line as a result,” he said. In a speech yesterday, CFTC Chairman Gary Gensler confirmed this analysis, releasing data showing that nearly 90 percent of traders betting that oil prices will rise are speculators, not traders interested in ever holding actual oil:
Based upon CFTC data as of May 31, 2011, only about 12 percent of gross long positions and about 20 percent of gross short positions in the WTI crude oil market were held by producers, merchants, processors and users of the commodity. […]
Based upon CFTC data, the vast majority of trading volume in key futures markets — up to 80 percent in many markets — is day trading or trading in calendar spreads. Thus, only a modest proportion of average daily trading volume results in reportable traders changing their net long or net short futures positions for the day. This means that only about 20 percent or less of the trading is done by traders who bring a longer-term perspective to the market on the price of the commodity.
As McClatchy explained, “that means that 88 percent of bets on price hikes for oil were held by financial players — mainly Wall Street banks and hedge funds that invest for the ultra wealthy — not interests seeking to use the oil.” Since 1990, oil speculators have more than doubled their share of the oil market, making up 68 percent of oil traders last month. Even ExxonMobil CEo Rex Tillerson admitted that speculation is driving up the price of oil, estimating that the price of a barrel should be closer to $60 if governed exclusively by supply and demand.
Under the Dodd-Frank financial reform law, the CFTC was given the ability to crack down on excessive speculation in the oil market, but it has yet to act, due in part to reluctance on the part of conservative members of the commission. However, Gensler said yesterday that “it is essential to complete the task of implementing the aggregate position limits regime, Congressionally mandated to guard against the burdens of excessive speculation.” Last month, the CFTC finally charged traders for artificially driving up the price of oil in 2008.