For anyone who believes that speculation by energy traders explains at least a portion of the run-up in oil prices, the announcement that the Commodity Futures Trading Commission is investigating oil market "manipulation" is welcome news. Maybe, at long last, we'll get some clarity on this mystery. Speculation likely does not explain the entirety of $130-a-barrel oil, but it's reasonable to assume that some sort of shenanigans are going on behind the scenes.
But for How the World Works, the most interesting tidbit in the Wall Street Journal's coverage was the news that the CFTC had "reached an agreement" with Intercontinental Exchange Inc., the operator of ICE Futures electronic exchange.
As I've harped upon in this space on numerous occasions, trading on ICE is not, as the Journal delicately puts it, "subject to the same CFTC reporting requirements as Nymex [New York Mercantile Exchange] trading." Which means energy traders can do what they want under cover of darkness, and regulators are none the wiser. But "ICE will now provide daily information on large trader positions in its oil-futures markets, divulge more details on market participants and notify the CFTC when traders exceed position limits."
To which, all I can say is finally! It's not like nobody knew this was a problem. For background information, interested readers are referred to two lengthy government reports, "The Role of Market Speculation in Rising Oil and Gas Prices: A Need to Put the Cop Back on the Beat," and "Excessive Speculation in the Natural Gas Market," published in 2006 and 2007, respectively. To allow some commodity trading exchanges to operate without oversight while others must report what's going on is an open invitation to traders: "Manipulate me, pretty please."
Of course, this didn't happen by accident. I wrote about this yesterday, and I wrote about it the day before yesterday, and I'm seriously considering writing about it every single day until the next election for the presidency of the United States is decided. The freedom of energy traders to operate on exchanges such as ICE without having to report their activities to the U.S. government is directly attributable to the husband-and-wife politicking of Phil and Wendy Gramm. That's right, Phil "top-economic-advisor-to-John McCain" Gramm. If speculation has pushed up oil prices, Phil Gramm is at least partially responsible.