Thursday, July 24, 2008

I'm feeling manipulated

The Commodity Futures Trading Commission (CFTC) Tuesday:

The ... preliminary analysis to date does not support the proposition that speculative activity has systematically driven changes in oil prices.
The CFTC today:

The U.S. Commodity Futures Trading Commission (CFTC) announced today its case against Optiver Holding BV, two of its subsidiaries, and three employees, charging them with manipulation and attempted manipulation of New York Mercantile Exchange (NYMEX) Light Sweet Crude Oil, New York Harbor Heating Oil, and New York Harbor Gasoline futures contracts during March 2007.

The complaint charges all defendants with 19 separate instances of attempted manipulation involving the aforementioned energy futures contracts on 11 days in March 2007. The complaint further alleges that in at least five of those 19 attempts, defendants successfully manipulated certain of these energy futures contracts, causing artificial prices.
So speculators can't manipulate prices, unless they do.

5 comments:

Bubba said...

There is a difference between "speculation" and "manipulation".

Speculation is what markets function on. Manipulation is an artificial contrivance for an economic gain not subject to normal market forces..

Those who think that "speculation" is the problem are wrong.

"Manipulation" is the subject that needs to be addressed, particularly in oil commodities. There ARE means to address this problem.

Dave Ribar said...

Bubba:

The first report said that there was no evidence that speculators were affecting prices.

The second announcement said that a group of speculators were being charged with manipulating markets and specifically with affecting prices.

I am aware that not all speculators are manipulators. However, as the Hunt brothers, Enron, and others have shown, it is possible for some speculators to be manipulators.

Bubba said...

"However, as the Hunt brothers, Enron, and others have shown, it is possible for some speculators to be manipulators."

No question.

Manipulation is not confined to commodity markets, either.

Manipulation in equity markets has a long and sordid history, also.

Bubba said...

On a related matter, there is anecdotal talk that Exxon/Mobil is planning for oil to fall to the 30-50 bbl range in the intermediate term.

I have heard that from several different sources, none of whom could offer any concrete evidence....yet.

I find that very interesting to "speculate" upon the possible reasoning involved for any planning along those lines..

Dave Ribar said...

Bubba:

The difference in the results between the study and the case are that the study looked at aggregate relationships, while the case is looking at just a few relationships.

The study reports something similar to what you are hearing. In recent months, the study found that speculators have actually held net short positions, which should be driving prices down rather than up.