Leaked US CFTC data on commodity market positions in the run-up to 2008’s record oil price spike has fanned the flames of the long-running speculation debate. Pauline McCallion reports On August 19, Vermont Senator Bernie Sanders posted on his website the names and aggregate position levels of more than 200 traders of crude oil, heating oil and gasoline between December 2007 and June 2008. This period saw the price of crude futures rocket above $100 per barrel before eventually reaching a record of more than $147 per barrel in July 2008. Making this information freely available is in the public interest, according to Sanders. "This report clearly shows that in the summer of 2008 when gas prices spiked to more than $4 a gallon, Goldman Sachs, Morgan Stanley, and other speculators on Wall Street dominated the crude oil futures market causing tremendous damage to the entire economy," Sanders said in a statement posted on his website alongside the leaked information. "The CFTC [Commodity Futures Trading Commission] has kept this information hidden from the American public for nearly three years. That is an outrage." He went on to say that the American people have a right to know "exactly who caused gas prices to skyrocket in 2008 and who is causing them to spike today". But this argument is flawed, according to Michael Cosgrove, managing director, strategic initiatives at GFI Group, since the data shows that many of the financial participants criticized by Sanders, including organisations he has specifically named such as Morgan Stanley, were actually short the market and so would not profit from further price increases. "He excoriated a number of market participants, decrying banks in particular and saying they are responsible for energy price increases. Then he posted a list to substantiate his claims, but if you actually look at the data, he is wrong," Cosgrove says. He also argues that the data provided by Sanders does not show the entire picture for the companies listed. "It's like finding the tail of an elephant and claiming to be able to extrapolate the animal's weight and height from that," he says. "It is a splinter of information that reveals nothing about any of these company's related activities, such as their physical holdings." Others believe it could discourage participation by those concerned about future revelations. John Damgard, president of the Futures Industry Association (FIA), released a statement that said: "This type of incident will have a chilling effect on derivatives trading in the US because market participants will be reluctant to take the risk that their positions will be exposed to the public -and their competitors." But in a letter sent to CFTC chairman Gary Gensler on August 22, Sanders addresses this concern, saying: "This is a good thing. Rampant oil speculation is causing severe damage to the economy and it has got to stop." It is unclear how Sanders obtained the information and whether more leaks can be expected. "The US Senate is the source of most of the leaks that hit the press," says Mike Gill, senior policy advisor at law firm Crowell & Moring. "The [US] constitution provides for a very liberal 'speech and debate' clause for sitting members of Congress." He adds that an agency can refuse to give a member of Congress information, forcing them to seek a subpoena from a committee to the agency. "Usually it never comes to that, but if Sanders got the information formally from the CFTC they won't make that mistake again. If he got it from a leak inside or outside, there is little they can do," Gill says. Sanders introduced legislation on June 15 that would force the CFTC to impose limits on oil speculators in the commodity and futures markets. The leak was an attempt to show the need for the CFTC to act immediately to implement a position limits rule under the Dodd-Frank Act - a rule he says federal regulators have been "thumbing their noses at" for a year since Dodd-Frank was enacted in July 2010. The Act does not direct the CFTC to implement a position limits regime, but it gives the regulator the authority to do so, as appropriate, to reduce or eliminate excessive speculation. The CFTC proposed a rule on position limits in December 2010, but in January 2011 commissioners voted on a revised version that would allow the regulator to gather more information before eventually putting limits in place. At the January 2011 vote, commissioner Michael Dunn said: "I am voting for the proposed rule on position limits in order to gather more information. If there is more than anecdotal evidence that there is excessive speculation distorting the prices in our markets, we need to see it. If there is statistical or economic analysis that shows that excessive speculation exists and that position limits will diminish, eliminate, prevent it, we need to see it. If there is evidence that position limits will lower the price that we pay for gas, milk and steak while simultaneously insuring the integrity of our markets and the price discovery process, we need to see it. Only after all these questions have been answered will I be able to determine whether or not position limits are appropriate." In his August letter to the CFTC, Sanders said the claim that not enough data is currently available to let the regulator set proper limits is "laughable", adding that his leak proves the CFTC has been collecting this information for more than three years....
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