Traders “Looking for a Quick Buck” to Blame For 2008 Wild Oil Prices

July 28, 2009

(ChattahBox)—The huge spike in crude-oil prices last year was due to oil speculation by large institutions, engaging in high-risk trades by betting on the direction of commodities prices, taking the price of oil on a wild and bumpy ride at the expense of the average consumer, struggling to pay for heating oil and other basic essentials.

The Commodity Futures Trading Commission (CFTC) plans to issue a report in August, which repudiates an earlier report issued under the Bush administration, which concluded the extreme swings in oil prices were the normal result of supply and demand.

Last year, crude-oil prices increased to a record breaking $145 a barrel, and then dropped to a low of $33. Oil is now trading at about $68 a barrel. The CFTC headed by then Bush-appointee Walter Lukken, claimed the agency “did not find direct evidence that speculation was driving up prices.”

CFTC commissioner Bart Chilton, dissented from the 2008 report saying, “We didn’t have all the information we should have,” And we gave it to Congress anyway, and we spun it.” Now, the new Chairman Gary Gensler, appointed by President Obama, is about to issue a new report based on more extensive data, which shows that oil speculators were indeed responsible for the surge in commodity prices.

The CFTC under Gensler is poised to institute new regulations to limit speculative investments in commodities, by institutions betting on their direction purely for financial gain. Democratic Senator Byron Dorgan wants to put an end to “oil speculators looking for a quick buck at the expense of American consumers.”

The Obama administration and many lawmakers want to ensure that speculators don’t cause another wild spike in oil prices, depriving consumers of affordable heating oil and food.

The oil speculators hedged their bets by buying contracts tied to indexes, combined with purchases of derivatives outside future exchanges, which allowed contrary bets to offset their risks. Last year alone, traders had about $300 billion invested in index contracts.

Traders are loath to support any curbs on their risky speculation, insisting their wild commodity trading serves the public by adding liquidity to the market. The new CFTC chairman and lawmakers disagree, believing regulations curbing oil speculators are necessary to protect consumers and the economy from their greed.



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