Hedge funds and speculators reduced positions in oil by 80% as prices rose to records and as U.S. regulators started investigating trading, Bloomberg News reported Monday, citing government data.Net long positions decline to 25,867 contracts on the New York Mercantile Exchange in the week ended May 27, 2008 from a record 127,491 contracts on July 31, 2008 according to a U.S. Commodity Futures Trading Commission report.
Last week, the CFTC, under pressure from Congress, announced that it had expanded an investigation of oil's price rise and oil futures contracts. Oil has increased about 100% in the past 12 months, and about 480% since 2002. Oil rose $1.50 to $128.50 per barrel in mid-day Monday trading.
Many Congressional officials and consumer groups have asserted that institutional investors and other speculators have manipulated oil prices and driven them 'artificially higher.'
Others, including oil executives, argue that the price increases have more to do with the sector's bullish fundamentals - - including inadequate global crude oil production growth amid global rising demand.
Oil Analysis: The CFTC will have a great deal to chew on, concerning causal variables, including: the dollar, geopolitical risk, oil as an asset class, oil as an inflation hedge, production complications, and of course, rising global demand. And while the CFTC inquiry's report will make for required reading in many Washington and Wall Street circles, it seems highly unlikely that the report will prove that various investors coordinated their buying on long contracts to artificially boost oil's price.
What's the report more likely to show? A tepid stock market, the by-product of a sluggish U.S. economy, led to an oil-long futures frenzy among hedge and investment funds, once it became clear oil would earn out-sized returns for several years.
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Reader Comments (Page 1 of 1)
6-04-2008 @ 9:02PM
Frankie said...
It looks like Mr CFTC is leaping and stretching to prevent the ball from going over the fence. What they misunderstand is the home run was hit about 6 innings ago.
6-20-2008 @ 10:27PM
Susan Parker said...
Frankie seems to have taken off any rose colored glasses; I sincerely wish he weren't so right. Perhaps Hank Paulson will coach CFCT; who could possibly know more about what's behind the 'oil hedge'. Certainly not 99.99999999999% percent of the world population. With great sadness,
(R-MA), Susan