NCPA - National Center for Policy Analysis


July 25, 2008

As Congress debates how to curtail the role of speculators and rein in rising oil prices, a federal task force said this week that it had so far found no evidence that those investors are systematically pushing up the cost of energy, says the New York Times. 

Instead, in an interim report by the Commodity Futures Trading Commission with help from six other agencies, including the Federal Reserve and the Treasury, the task force said that its research "does not support the hypothesis that the activity of these groups is driving prices higher."

Other findings:

  • The rise in oil prices over the last five years was largely due to fundamental factors like rapidly rising consumption and sluggish growth in energy supplies worldwide.
  • A review of both public and nonpublic data shows that speculators could not be fairly blamed for rising prices.
  • For example, swap dealers, who privately offer investors a future return linked to commodity markets, were roughly balanced between purchases and sales of energy futures contracts.
  • In the first five months of 2008, more of these swap positions were selling than buying; during that same period, oil prices rose 28 percent.

The report's key finding was that speculative investors more often changed their positions after prices had moved, not before.  This suggests that these traders are responding to new information -- just as one would expect in an efficiently operating market.

In identifying the drivers of energy prices, the report noted that oil consumption grew 3.9 percent between 2004 and 2007.  At the same time, oil supplies lagged far behind that demand.

Source: Jad Mouawad and Diana B. Henriques, "Speculators Aren't Driving Up Oil Prices, Report Says," New York Times, July 23, 2008.

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