The Wall Street Journal today editorializes on the Commodity Futures Trading Commission’s new study that debunks the populist bunkum that blames nefarious speculators for the rise in oil prices. As the Journal reports, “The CFTC conducted an unprecedented Wall Street data sweep and scrutinized millions of transactions worth billions of dollars between January and June of this year.” And, from “See You Later, Speculator“:
Lo and behold, the CFTC found that index traders and swap dealers actually reduced their stake in crude oil futures as prices spiked. The number of contracts held by these investors betting that prices would increase — the net long position — fell by 11%, and more were shorting oil than going long over the six-month period. In other words, index traders and swap dealers were driving the future price of oil down.
The CFTC study is especially notable because it came in response to extraordinary political pressure. Congress held more than 40 hearings on “speculation” over the summer, and commission chief Walter Lukken was the pinata. Federal bureaucracies have been known to try to appease their Congressional funders, so the CFTC deserves special credit for debunking the speculator frenzy.
This is an important, timely report in light of this week’s congressional debate on energy legisation. Absent conspiracies and manipulation, it must be market forces that have led to the spike (flattening lately) in oil prices. You know, limited supply meeting rising demand. So the policy solution to expensive energy logically becomes more supply, less demand.
More supply through domestic production….Logically enough.
Lukken’s testimony before the House Agriculture Committee is available here.
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