Crude oil price increases during the first part of the year were largely not due to speculative trading on the futures market, acting CFTC Chairman Walter Lukken testified today before a House panel.
Mr. Lukken’s comments to the House Agriculture Committee were based on a Commodity Futures Trading Commission report released today that analyzed over-the-counter swap and commodity index activity in the first half of 2008.
Mr. Lukken cautioned that the report was looking only at a narrow slice of time and said more transparency and study is needed.
According to the CFTC report, the aggregate amount of commodity index trading that occurred both OTC and on-exchange as of June 30 is estimated to be $200 billion, of which $161 billion was tied to commodities traded on U.S. markets regulated by the CFTC.
“Based on the staff report, the commission is recommending preliminary actions to increase transparency and improve controls in the marketplace,” Mr. Lukken said. “The recommendations represent steps in modernizing the agency’s approach to oversight, while ensuring that the markets remain competitive, open, and on U.S. soil.”
During the hearing, Mr. Lukken was questioned about a report released Wednesday co-authored by Michael Masters, portfolio manager of Masters Capital Management, which found that speculative activity on the part of large institutional investors has led to price increases. Mr. Lukken said Mr. Masters’ report was based on CFTC data that was “reversed engineered,” and there was a “potential for error” in that method.
“What we have with this report is a compelled survey,” he said, referring to the CFTC report. “It’s the best data we have because it comes directly from those participating in the markets.”
