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Oil Specs

Sandhusker

Well-known member
WASHINGTON — 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 commission data showed that a significant amount of trading activity was concentrated in the hands of just a few speculators.

The commission, 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. That's a far bigger share than had previously been stated by the agency. That figure may rise in coming weeks as the commission 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 this 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 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 commission, 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.

Commission documents show Vitol was one of the most active oil traders 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 to settle at $114.98 Wednesday.

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 rest borrowed.

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 commission'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.

Commission 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.

Commission leaders have argued that speculators are not influencing commodities' prices. If any new information arises during the agency's examination of swap dealer activity, officials said they would report it to Congress.

"To date, the CFTC has found that supply and demand fundamentals offer the best explanation for the systematic rise in oil prices," commission spokesman R. David Gary said, reading a statement that had been crafted by agency officials. "Regardless of their classification . . . the CFTC's market surveillance group scrutinizes daily the positions of all large traders, both commercial and noncommercial, to guard against market manipulation."

Victoria Dix, a spokeswoman for Vitol, declined to answer questions. The firm, through Dix, released a statement that stated only that it had not been contacted by the commission about the reclassification of its business and that its trading status remained unchanged.

Commission officials said they do not typically contact firms that are reclassified.

On its Web site, the firm says it has $100 billion a year in revenue and describes its thriving global energy-trading business.
 
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Anonymous

Guest
The commission, 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. That's a far bigger share than had previously been stated by the agency. That figure may rise in coming weeks as the commission checks the status of other big traders.

Doesn't surprise me a bit- as this is exactly what the former commissioners testifying to Congress said would be found-- as the CFTC has been asleep at the switch for years after Bush told them to take an 8 year vacation.... :( :mad:
 

TSR

Well-known member
Oldtimer said:
The commission, 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. That's a far bigger share than had previously been stated by the agency. That figure may rise in coming weeks as the commission checks the status of other big traders.

Doesn't surprise me a bit- as this is exactly what the former commissioners testifying to Congress said would be found-- as the CFTC has been asleep at the switch for years after Bush told them to take an 8 year vacation.... :( :mad:

And this is something that could be corrected rather quickly and think of the almost immediate impact it would have on the economy.
 
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Anonymous

Guest
TSR said:
Oldtimer said:
The commission, 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. That's a far bigger share than had previously been stated by the agency. That figure may rise in coming weeks as the commission checks the status of other big traders.

Doesn't surprise me a bit- as this is exactly what the former commissioners testifying to Congress said would be found-- as the CFTC has been asleep at the switch for years after Bush told them to take an 8 year vacation.... :( :mad:

And this is something that could be corrected rather quickly and think of the almost immediate impact it would have on the economy.


Yep and it almost was--until the boys got whipped into line and told to heel to King George and the Oil/K Street folks ....Hold out for more drilling rather than do anything that might help the common folks right away... :( :mad:


House Agriculture Committee Chairman Collin C. Peterson of Minnesota released the following statement today regarding the floor vote
on H.R. 6604, the Commodity Markets Transparency and Accountability Act of 2008:

"With the support of more than 290 Members of Congress, including more than 75 Republicans, H.R. 6604 was well on its way to being
passed over the two-thirds vote requirement, sending a clear signal that transparency and enforcement would return to the
commodities and futures markets. Then Republican leadership demanded that Members change their votes in order to protect President
Bush
.


H.R. 6604 is a bipartisan bill that passed the Agriculture Committee by voice vote. It is the product of a comprehensive series of
hearings to examine the issues surrounding futures trading from all sides. And it clearly has enough support to pass this House.
We will continue to pursue meaningful steps to address the conditions that have thrown some futures markets into disorder and hope
that Members will have the courage of their convictions to join us."


The U.S. House Committee on Agriculture web site http://agriculture.house.gov has additional information on this and other subjects.
 

TSR

Well-known member
Mike said:
This is all BS.

For every winner in the speculation market, there must be a loser. :roll:

But winners and losers amounts of loss and gain are not always equal. I made 25 million today, yesterday I lost 5 million. I am still ahead of the game. If it was so much BS then it wouldn't have hurt anything passing a bill to govern it would it? I mean nothing would have been lost, so lests pass the bill. :???:
 

mrj

Well-known member
What would be lost 'lost' if the trading or 'speculation' were not allowed would be the ability of businesses to secure their needs in advance, thus assuring their uninterupted prouction, isn't it?

This sounds like yet another example of Democrat witch hunting for dreamed of political gains over those attempting to keep the country working (which does require fuel, after all!). Obviously, some Dems' believe the advangage is theirs if our economy does poorly, ignoring the suffering to many of their constituents in the process.

mrj
 

RobertMac

Well-known member
I'm all for more transparency in the markets and market moves tired more to fundamentals...and I'm sure most Republicans are too. But this action is being used to try to force the Democrats to have a vote on drilling. Pass this speculation bill and the Republicans have to leverage on drilling.
 
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Anonymous

Guest
mrj said:
What would be lost 'lost' if the trading or 'speculation' were not allowed would be the ability of businesses to secure their needs in advance, thus assuring their uninterupted prouction, isn't it?

Not if the old rules that were removed by Foreclosure Phil in a tag along midnite attachment amendment to a must pass budget bill that made Enron Billions $ ( while it cost common folks Billions/Trillions $) were removed allowing transparency back into the markets- and allowing only those actually taking receipt of the product to speculate...
 

Texan

Well-known member
TSR said:
Mike said:
This is all BS.

For every winner in the speculation market, there must be a loser. :roll:

But winners and losers amounts of loss and gain are not always equal. I made 25 million today, yesterday I lost 5 million. I am still ahead of the game. If it was so much BS then it wouldn't have hurt anything passing a bill to govern it would it? I mean nothing would have been lost, so lests pass the bill. :???:
So you're up $20 million. Where did it come from? That's Mike's point.

So tell us - since "winners and losers amounts of loss and gain are not always equal" - where did your $20 million come from?
 
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