09/30/2011 09:42 am ET | Updated Nov 30, 2011

Media Squawked When It Should Have Jumped on Oil Market Speculation Coverage

Faced with some hot data on oil speculation, the media squawked when it should have jumped.

After firebrand Vermont Senator Bernie Sanders leaked confidential data from the Commodity Futures Trading Commission to the Wall Street Journal last month -- data that dramatically illustrated how speculators were dominating the oil futures market during the 2008 spike in oil prices -- other news outlets jumped on the story.

In the worst possible way.

The data, which exposed precisely how much Goldman Sachs, Morgan Stanley, and other Wall Street speculators dominated the crude oil futures market, was a big new lead reporters could have used to further explore the dynamics behind the staggering gas price increase that resulted in a huge transfer of wealth from ordinary Americans to the very rich.

Another valid response to the story would have been to examine why data this revelatory isn't routinely made public.

But several news outlets instead focused on comments by one supposedly outraged futures trader. Sarah N. Lynch of Reuters reported that Sanders's leak was "sparking broader concern about industry confidentiality." The story quoted John Damgard, president of the Futures Industry Association, as saying: "This type of incident will have a chilling effect on derivatives trading in the U.S. because market participants will be reluctant to take the risk that their positions will be exposed to the public-and their competitors."

The Gannett Washington bureau's Nicole Guadiano (in a story no longer available online) wrote that the disclosure "could have a 'chilling effect' on the market and make it more difficult for regulators to gather information."

But even leaving aside the issue of whether chilling the futures market would be a bad thing or a good thing, this complaint was a transparently insincere and self-serving one -- and a feint. While the disclosure of futures trading activity in real time could potentially reveal proprietary information, the only danger presented by the release of three-year-old data was the exposure of enormous and inappropriate gambling by big Wall Street players in a market intended to let companies that actually use commodities hedge against future cost changes.

"That's not an honest reaction," said Tyson Slocum, the director of the energy program at Public Citizen, who helped Sanders get the data to reporters. "It's pushback designed to discredit Sanders -- and change the subject from what the data means to the action that leaked the data."

The biggest endorsement of this bogus story line came on the op-ed page of the Washington Post in early September, in a piece titled: Sen. Bernie Sanders's market data leak deserves investigation.

In the op-ed, James E. Newsome and Fred Hatfield, identified by the Post simply as former CFTC commissioners, lambasted Sanders for his "unconscionable" act and warned that traders could "lose confidence in these markets."

"This reckless, unprecedented action deserves a full examination by the CFTC and congressional oversight committees," they wrote.

The Post not only chose to run their piece, but neglected to note the authors' blatant conflicts of interest.

As the Wall Street Journal noted three days later: "What the Washington Post opinion piece didn't say is that Newsome now helps run Delta Strategy Group, a lobbying firm whose clients include energy traders -- the very people who would be aggrieved by the public disclosure of energy-future positions. Delta Strategy Group has been among the most active lobbyists to the CFTC. Hatfield also is a lobbyist and chairman of ICE Future USA Inc."

It took five days after that for the Post to finally run and append a "clarification" noting that Newsome's company has clients that trade in futures and swaps and that Hatfield's company "operates exchanges and trading platforms for credit, emissions, energy and other products."

In the interim, Sanders had fired back in the Post with an op-ed entitled: What Wall Street doesn't want us to know about oil prices. "Now it is appropriate to lift the veil of secrecy in the oil futures market," he wrote. "The American people have a right to know how much excessive speculation has driven up oil prices and which Wall Street firms are doing it."

Slocum said he was surprised the press didn't respond more assertively to the substance of the leak.

"I thought it'd be a big story," he said. "This document leaked by Sanders was the first time that individual traders were named, along with the size of their positions, and that's a critical piece of transparency."

Indeed, Slocum said what reporters should be asking is why Wall Street traders should be entitled to keep this information secret? After all, large individual shareholders of publicly-traded companies are required to disclose their holdings. So why shouldn't an investor cornering the market in a commodity?

"If you get to control a big chunk of the market and the only people who know are some regulators who don't have a law forbidding control of a big chunk of the market, then you have market power," Slocum said. "You're able to be a price setter."

Slocum on August 31 sent a letter to CFTC Chairman Gary Gensler asking that company-specific data be released two weeks after the daily close. Currently, the CFTC only releases aggregate data "and public understanding of the role that speculators have in energy markets requires the addition of company-specific position data," Slocum wrote.

The only chilling effect of such disclosure would be on trades that the companies would be embarrassed to see made public, Slocum said in an interview.

"That's why this is secret: it's embarrassing to these companies," he said. "This is not about bullying these companies. It's not about denying them proprietary treatment. It's about market transparency."

Meanwhile, there is important movement on two other fronts. The Dodd-Frank Wall Street reform bill, signed into law in July 2010, gave the CFTC until January 2011 to set rules curbing speculation in the energy and other markets. Those rules, already eight months late, are now due in early October -- but have proven to be particularly controversial.

The CFTC's draft rules issued in January would limit any investor to 25 percent of estimated deliverable supply of the commodity in question -- a limit Goldman easily surpassed during the oil price spike.

And last week, Sen Bill Nelson (D-Fla.) and a small handful of colleagues introduced a bill that would limit any single investor to 5 percent of the oil futures market, "thereby greatly reducing speculators ability to manipulate prices." The bill would also limit the total amount of speculative trading -- as opposed to legitimate hedging by oil users -- to its average over the most recent 25 years. That, the lawmakers announced, could reduce the current pace of speculation by more than half.

Dan Froomkin is the deputy editor of the Nieman Watchdog Project. He is also Senior Washington Correspondent for the Huffington Post.

This post originally appeared at Nieman Watchdog.