You can count on what's denied being part of the reality-based world, that is. Especially when the offspring of Enron and Halliburton can make a buck off it:
Investors' Growing Appetite for Oil Evades Market Limits
Trading Loophole for Wall Street Speculators Is Driving Up Prices, Critics Say
By David Cho
Washington Post Staff Writer
Friday, June 6, 2008
Hedge funds and big Wall Street banks are taking advantage of loopholes in federal trading limits to buy massive amounts of oil contracts, according to a growing number of lawmakers and prominent investors, who blame the practice for helping to push oil prices to record highs.
The federal agency that oversees oil trading, the Commodity Futures Trading Commission, has exempted these firms from rules that limit speculative buying, a prerogative traditionally reserved for airlines and trucking companies that need to lock in future fuel costs.
The CFTC has also waived regulations over the past decade on U.S. investors who trade commodities on some overseas markets, freeing those investors to accumulate large quantities of the future oil supply by making purchases on lightly regulated foreign exchanges.
Over the past five years, investors have become such a force on commodity markets that their appetite for oil contracts has been equal to China's increase in demand over the same period, said Michael Masters, a hedge fund manager who testified before Congress on the subject last month. The commodity markets, he added, were never intended for such large financial players...
Even as record oil prices translate into staggering increases at the pump, some regulators, including Treasury Secretary Henry M. Paulson Jr., say investors are not to blame. These officials cite supply and demand as a far bigger factor.
Since last year, this was also the position of the CFTC. But agency officials have recently signaled greater concern, saying they want to collect more data to determine whether speculation might be a significant factor. That information can be difficult to obtain because commodity trading often occurs through private, unregulated transactions and on overseas exchanges.
Walter Lukken, the acting chairman of the CFTC, acknowledged in an interview that his agency has had a hard time keeping up with the sector it oversees. Commodity trading has exploded in complexity and popularity, he said, growing six-fold in trading volume since 2000. That was the year a handful of giant energy companies, including Enron, successfully lobbied Congress to ease the regulation of energy markets.
Meanwhile, the CFTC's staffing has dropped to its lowest levels in the agency's 33-year history...
On commodity markets, buyers largely purchase futures contracts, which determine the price goods will fetch on a particular date in the future. Unlike commercial businesses that are trying to lock in prices for coming orders, speculators have little interest in taking actual delivery of oil or other commodities. Instead, these investors trade the contracts like stocks. These investments can be very attractive because there are only light restrictions on whether they can be bought and sold using borrowed money...
The recent craze in commodity investing is partly due to the emergence of commodity index funds, which act like mutual funds except they hold futures contracts rather than stocks. Such funds have made commodity purchases far easier for a wide range of investors, including hedge funds, investment banks, pension funds and university endowments.
George Soros, one of the nation's leading investors, testified in a Senate hearing this week that index funds were contributing to the rapid rise in commodity prices and were possibly creating a bubble. If it were to burst, sending prices tumbling, the fallout could wreak havoc on banks, retiree funds and colleges across the nation...
Information on commodity trades can be hard to come by. Some contracts are exchanged privately between two parties who do not have to disclose the transaction. There are also two exchanges that trade oil and other goods in the United States. One, the New York Mercantile Exchange, or Nymex, is closely regulated. The other, Intercontinental Exchange, has set up a market in London, where trading can occur beyond the purview of U.S. regulators.
Nymex is now setting up its own market in Dubai, which the CFTC has given permission to trade oil destined for delivery in the United States. The CFTC has stated that it would not place restrictions on U.S. investors who exchange oil contracts in Dubai but rely on foreign regulators...
Dubai, of course, being the new worldwide headquarters of the Halliburton corporation.
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