As the Senate took up the proposed Stop Excessive Energy Speculation Act of 2008 (S. 3268) Tuesday, 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.”

“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.

Senators, meanwhile, vented their sound and fury over high oil and gasoline prices in speeches throughout the day, with no sign so far of compromise energy legislation that might have a chance of passage. While Democrats variously blamed “big oil” and speculators for consumers’ woes, Republicans countered that restrictions on offshore and onshore drilling locations were at the root of the oil price crisis. Without a compromise moderating the speculation bill and incorporating a lifting of the ban on drilling in the Outer Continental Shelf, it’s likely the ongoing congressional debate will do little more than provide fodder for campaign speeches back home, pundits say.

The excessive speculation bill, introduced last week by a group of Democratic senators led by Majority Leader Harry Reid of Nevada, aims to vastly expand the mission of the CFTC, reduce pure speculation in the futures market, reach a regulatory arm into the over-the-counter realm of derivatives, swaps and index funds, direct FERC to undertake a study of the role of financial institutions in natural gas markets, and expand federal energy data information collection (see Daily GPI, July 21). For a copy of the task force report go to www.cftc.gov.

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