2008 Oil Futures Truthers: There may never be a smoking gun but there is definitely GSR all over CFTC Release 5511-08
More recent headlines with frequent references to meltdowns, bailouts, and change that include numerous phrases referencing many “hundreds of billions of dollars” now occupy our very limited national short term memory to the point that no one really seems to care about the causes of the large, sudden spike in oil / gas prices earlier this year. In the grand scheme of things, maybe it really just doesn’t matter in the day-to-day lives of Americans anyway.
There is, however, some benefit in knowing and acknowledging some truth about what happened even if the exact who and how will never be completely known. For me, these lessons will be applied in knowing who to believe and who not to trust during the next “crisis”. (Many famous names and faces…on cable anyway…are definitely now on the “do not trust” list.) Big stories like this that are reported on across all outlets for extended periods of time are good for this type of exercise…its too bad more Americans don’t take the time to notice…and learn.
With regards to the 2008 spike, there is a case to be made that there was heavy speculative influence and ICE Futures Europe appears to have been the epicenter. While only circumstantial in nature, good evidence of this can be seen in the Release 5511-08 from the U.S. Commodity Futures Trading Commission titled CFTC Conditions Foreign Access on Adoption of Position Limits on London Crude Oil Contract (1) and the events that transpired in the months that followed. Here is he meat of the June 17 amendment:
… ICE Futures Europe will follow similar U.S. hedge exemption requirements and will report violations of any such provisions to the CFTC. This action also formalizes the recently-announced information-sharing arrangement between the CFTC and the U.K. Financial Services Authority by requiring ICE Futures Europe to provide the CFTC with detailed market information (equivalent to U.S. standards) for surveillance purposes, as a condition of direct access to U.S. customers. The CFTC will incorporate the foreign exchange’s data directly into the CFTC’s Commitments of Traders report, which is a weekly report categorizing traders and positions. Commission staff intends to apply these new foreign access conditions to any future requests for direct foreign access to U.S. customers for contracts that cash settle against those listed on any U.S. exchange. The revised Commission staff foreign access conditions must be satisfied by ICE Futures Europe within 120 days.
Twenty seven days later, oil futures hit their peak and then began a rather abrupt drop to the $70 per barrel range just before the new reporting conditions were required to be in place. (It may be worth pointing out to the “Its-All-Just-Supply-And-Demand” Choir that this mid-October value is right about where many maintained the true supply-and-demand price point was all along.) In short, word came that the veil of secrecy was going to be lifted and the monkey business came to an end.
As I mentioned above, this probably couldn’t be less important to most Americans at this point so it’s the perfect time for 60 Minutes to chime in. And so it appears they will pretend to be relevant tomorrow night (2). (Thanks Mr. Wallace (3).) Since I am continuing with my nearly decade long boycott of that program*, I cannot in good conscience recommend that any of my friends here waste twenty minutes of their lives watching the report but, if anyone does, I’d like to know if they come anywhere near getting it right. Thanks in advance.
Proud Member for 4 Years and 4 Months
* The last straw that led to this boycott occurred in the late 90s with a rather lame story on MTBE that came about 7-8 years too late and at least 3 years after most of the pertinent information was easily available…possibly even prepackaged and dropped in their laps. (See related gripes: Browner, Carol (4).)