CFTC Report Shows One Firm Held 11% of NYMEX Oil

Although the Commodities and Futures Trading Commission didn’t actually name the company, a private Swiss energy conglomerate called Vitol controlled 11% of all the oil contracts on the New York Mercantile Exchange as recently as July. At the end of July, four swap dealers held 1/3 of the market. Further, the CFTC says that 81% of the oil contracts traded on the NYMEX are held by financial firms speculating for their own accounts or for clients. This is not a clean and fair market.

It used to be that speculators were kept to smaller shares of the market. The Washington Post’s David Cho reported, “For most of the past century, regulators put limits on financial actors to prevent them from dominating commodity exchanges, which were much smaller than the bond or stock markets. Only commercial operations, such as farms, airlines, manufacturers and the middlemen that handle their trading activities, were allowed to buy nearly unlimited quantities. The goal was to allow these businesses to minimize the effect of price swings.”

Then in 1991, the CFTC allowed J. Aron (part of the Goldman Sachs empire) an exemption because, argued attorneys for J. Aron, its business of buying commodities on behalf of speculators was effectively the same as the brokers for the commercial operations. Clearly, the CFTC didn’t have any economists handy to point out the fact that it was a case of night and day.

This was aggravated in 2000 with the Commodities Futures Modernization Act, which allowed trading of commodities on private electronic platforms beyond the reach of regulators. This is the infamous “Enron loophole,” and the world knows what Enron did to America’s energy markets.

Despite the CFTC’s own report, it isn’t going to do anything about the matter. In fact, it’s going to become a willing accomplice to an increase of this sort of abuse of the market. Mr. Cho reports, “The CFTC has stated it would not stand in the way of trading in US oil contracts overseas in Dubai. Goldman Sachs and Vitol are among the major investors in this new exchange.”

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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