The Commodity Futures Trading Commission (CFTC) has labeled “factually inaccurate” a front page report in the Washington Post that said speculators account for about 81% of the West Texas Intermediate (WTI) crude oil contracts traded on the New York Mercantile Exchange (Nymex).

“That statement is factually inaccurate. The CFTC has never said that,” CFTC spokesman Dennis Holden told NGI. The 81% figure “seems to assume that all swaps dealers are engaged in speculative trading when that is not the case.” A “significant” part of swaps dealer activity involves bona fide commercial hedging and risk management of commercial energy interests, he said. Many swaps dealers are commercial banks, which act as counterparties in energy trading transactions.

Holden’s remarks responded to an Aug. 21 Washington Post story, which said the CFTC “now reports that financial firms speculating for their clients or for themselves account for about 81% of the oil contracts on Nymex, a far bigger share than had previously been stated by the agency.”

Holden instead estimated that noncommercial speculators make up about 50% of both the long and short side of the open interests in Nymex crude oil futures and options.

In an interim task force report on oil speculation issued in July, the level of speculative activity in the Nymex oil market was calculated at the 50% level after the classifications for some energy positions were changed to noncommercial speculative from commercial (see NGI, July 28). “One of the reclassified positions involved several energy markets,” Holden said. “We never said whether it was one or more than one company” involved in the reclassification, nor did the agency identify the company or companies that were subject to the reclassification.

Holden, however, noted that all of the reclassified positions for Nymex crude oil were net short, meaning that traders would only make money if the price of crude oil declined. Based on this and other factors, the CFTC in its interim report absolved speculators of blame in the run-up of crude oil prices this year.

Swiss energy company, Vitol, was at least one of the holders of crude oil positions on Nymex that were reclassified as noncommercial speculative, one newspaper reported. The company, which also is involved in natural gas and liquefied natural gas, at one point in July reportedly held 11% of all oil contracts on Nymex. Vitol has denied that it engaged in energy speculation.

The CFTC says it has detected a growing trend toward noncommercial trading in the energy industry, including natural gas. “Commodity swaps dealers and managed money traders (including hedge funds) have shown the greatest growth in trading natural gas futures on Nymex. In fact…noncommercial trading {largely speculative trading) has grown from 42% to 52% of the market from July 2004 to July 2007,” the agency said during a CFTC hearing last year.

“Changes in market share by noncommercial (speculative) traders in natural gas are broadly consistent with the patterns of changes in other markets. Noncommercial trading interest has risen across the board.”

The CFTC said it currently is seeking more information from swaps dealers to determine the level of speculation in the crude oil market. The agency expects to issue a final report on oil speculation by Sept. 15.

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