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Task Force Finds Speculation Not Guilty of Oil Price Rise

As Congress debated measures to rein in "excessive" energy futures market speculation last week, an Interagency Task Force on Commodity Markets, chaired by the Commodity Futures Trading Commission (CFTC), released an interim staff report that found fundamental supply and demand factors are largely the cause of escalating oil prices in the futures market.

"The Task Force's preliminary assessment to date does not support the proposition that speculative activity has systematically driven changes in oil prices," according to the report.

"The Interim Report on Crude Oil" blamed rising demand driven by a rapidly expanding world economy, particularly from emerging market countries, combined with supply constrained by "geopolitical unrest in countries with large oil reserves." There is also pressure from investors who are holding long futures market positions as protection from declines in the value of the dollar.

"To date there is no statistically significant evidence that the position changes of any category or subcategory of traders systematically affect prices," the report said. It noted that the evidence shows most speculative traders alter their positions after there is a price change, "suggesting they are responding to new information..."

The report analyzed daily price changes and position changes by various trader groups and combinations of trader groups between January 2003 and June 2008, saying there was little evidence that daily position changes by any of the trader subcategories, including swaps dealers and hedge funds, systematically precede price changes. It noted that other commodity prices also have been escalating rapidly, including the prices for coal, steel and onions, and some of these commodities do not trade on established futures markets.

Besides the CFTC, the Interagency Task Force on Commodity Markets includes staff from the Departments of Agriculture, Energy, and the Treasury, the board of governors of the Federal Reserve System, the Federal Trade Commission and the Securities and Exchange Commission.

"This staff report reflects the collective knowledge of some of our government's best economists. Each of the participating agencies brings unique expertise to the Task Force, and this Interim Report, for the first time, attempts to compile the government's best available information and analysis into one report," said CFTC Chief Economist Jeffrey Harris, who chairs the task force.

For a copy of the task force report go to www.cftc.gov.

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