Today, the Washington Post reported in a remarkable article that "A Few Speculators Dominate Vast Market For Oil Trading." It reported that "regulators had long classified the Swiss Company VITOL as a trader that primarily helped industrial firms that needed oil to run their business."
But then, surprise, surprise when our valiant oversight heroes, the Commodity Futures Trading Commission examined VITOL's books last month they found 'mirabile dictu' that VITOL 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. "DUH"! The article went on to point out that at one stage this July the firm held 11 percent of all the oil contracts on the regulated New York Mercantile Exchange alone. The CFTC has now determined that a massive amount of trading activity was concentrated with a handful of speculators, and that currently 81 percent of the oil contracts on the NYMEX, I repeat -- 81 percent, are held by financial firms speculating for their clients or for their own account. And that is for the NYMEX alone, not counting London's ICE, nor the Singapore Exchange, the Dubai Merc, on to Tokyo, etc.
Vitol itself held contracts equal to 57.7 million barrels of oil or three times the amount of oil consumed each day in the United States. How many square miles of storage would it have taken if Vitol had taken delivery of this vast quantity?
What is extraordinary in the unfolding of this story is that it took this long for the CFTC to access this data and reach its conclusions. It betrays a total lack of professional competence and oversight failings of monumental proportions. That we have an agency that does not have on staff professionals sufficiently versed in what they are meant to be monitoring. That they would be lulled into the belief that VITOL did business in oil simply supplying industrial firms, and oblivious to VITOL's reputation in the field as a massive trader in speculative oil futures contracts, is irrefutable evidence of a totally dysfunctional agency.
To add insult to injury, given its recent findings, a spokesman for the CFTC pontificated balefully, "To date, the CFTC has found that supply and demand fundamentals offer the best explanation for the systematic rise in oil prices." Thus in one stroke whitewashing the actions of the commodity exchanges themselves and bringing joy to oil producers who want us to believe nothing less.
It is beyond time to close down the CFTC and throw away the key!