We have reported before about how speculators have driven up the price of oil, but now there seems to be something approaching proof that this is the case. And as in other agencies of the Bush administration, the CFTC, which is responsible for regulating commodities traders, has shown itself instead to be a tool of the industries it's supposed to regulate. All across the board, the Bushies have put incompetents in charge of government agencies (remember "Heckuva job Brownie"?), and then pointed at them when they fail and said, "See, government doesn't work."
It turns out that a Swiss company, VITOL, has taken huge positions in oil and was in fact more of a speculator holding oil contracts as a profit making investment rather than a means of lining up the actual delivery of fuel. According to a Washington Post article, "A Few Speculators Dominate Vast Market for Oil Trading," speculators hold 81% of the contracts on NYMEX, the New York Mercantile Exchange.
"It is now evident that speculators in the energy futures markets play a much larger role than previously thought, and it is now even harder to accept the agency's laughable assertion that excessive speculation has not contributed to rising energy prices," said Rep. John D. Dingell (D-Mich.). He added that it was "difficult to comprehend how the CFTC would allow a trader" to acquire such a large oil inventory "and not scrutinize this position any sooner."
The CFTC, which refrains from naming specific traders in its reports, did not publicly identify Vitol.
The agency's report showed only the size of the holdings of an unnamed trader. Vitol's identity as that trader was confirmed by two industry sources with direct knowledge of the matter.
CFTC documents show Vitol was one of the most active traders of oil on NYMEX as prices reached record levels. By June 6, for instance, Vitol had acquired a huge holding in oil contracts, betting prices would rise. The contracts were equal to 57.7 million barrels of oil -- about three times the amount the United States consumes daily. That day, the price of oil spiked $11 to settle at $138.54. Oil prices eventually peaked at $147.27 a barrel on July 11 before falling back to settle at $114.98 yesterday.
The documents do not say how much Vitol put down to acquire this position, but under NYMEX rules, the down payment could have been as little as $1 billion, with the company borrowing the rest.
The biggest players on the commodity exchanges often operate as "swap dealers" who primarily invest on behalf of hedge funds, wealthy individuals and pension funds, allowing these investors to enjoy returns without having to buy an actual contract for oil or other goods. Some dealers also manage commodity trading for commercial firms.
To build up the vast holdings this practice entails, some swap dealers have maneuvered behind the scenes, exploiting their political influence and gaps in oversight to gain exemptions from regulatory limits and permission to set up new, unregulated markets. Many big traders are active not only on NYMEX but also on private and overseas markets beyond the CFTC's purview. These openings have given the firms nearly unfettered access to the trading of vital goods, including oil, cotton and corn.
Now we can see how such a simple thing as electing a President Obama who would clean house of these incompetent Bush administration appointees and replace them with regulators with real teeth could lower the price of oil significantly.
