Thursday, September 11, 2008

Oy vey. Dog bites man

Today's LA Times ran the AP story excerpted below. Washington DC-econ does not get futures markets. But the practitioners of DC-econ stand ready to regulate them.

Study links oil prices to investor speculation
Large investors are cited as a primary reason for volatility.

WASHINGTON — Speculation by large investors -- not supply and demand -- was a primary reason for the surge in oil prices during the first half of the year and for the more recent price declines, an independent study concluded Wednesday.

The report by Masters Capital Management said investors poured $60 billion into oil futures markets during the first five months of the year as oil prices soared from $95 a barrel in January to $145 by July.

Since then, those investors have withdrawn $39 billion from those markets as prices have retreated dramatically, the report said. Oil traded at about $102 a barrel Wednesday on the New York Mercantile Exchange. "We have clear evidence the fund flow pushed prices up and the fund flow pushed prices down," said Michael Masters of Masters Capital Management, calling the amount of money moving into oil futures markets by large institutional investors in the early part of the year "way off the scale."

Masters said its analysis showed that investors "began a massive stampede for the exits" July 15 and that this caused the price decline.

"These large financial players have become the primary source of the dramatic and damaging volatility seen in oil prices," the report concluded.

The report was released Wednesday by House and Senate sponsors of bills to put additional curbs on oil market speculation and comes in advance of a report on speculation that might be released this week by the Commodity Futures Trading Commission, which regulates commodity markets. ...