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Another Phony Report

The FTC staff released what it called a "report" today that supposedly concludes that speculation isn't playing a very big role in crude/gas prices.  Presumably as planned, all the media reported it largely without any real analysis, which would have quickly revealed that the "report" is so incomplete and poorly conducted that it didn't deserve to be released, much less reported uncritically.

Contrary to what appears to be an irresponsibly superficial "report," there is substantial evidence that speculation has skyrocketed and is excessive.  There is also evidence that this largely results from commodity index funds, which have distorted the commodity markets and the pricing of commodities.  

Indeed, Better Markets has independently reviewed ALL the available research and literature.  That review was discussed in our comment letter filed with the CFTC in connection with their proposed rule on position limits.  The comment letter and a summary of it can be found under the Reform Resources section of this website.  We will also be publishing more recent additional independent research that we've conducted soon.  

Regarding the FTC "report," Jim Collura of the New England Fuel Institute noted a few of the deficiencies: 

 

  • This is only a staff report, and it is not the official opinion of the FTC or its Commissioners.
  • It does not appear that a single economist, academic or other professional with an expertise in commodities derivatives or futures markets was involved in the report.
  • The issue of commodities market speculation is not given the same level of comprehensive analysis enjoyed by other areas of the report.
  • The staff, rather than drawing conclusions on the role of speculative activity that is based on their own analysis of available data, relies solely on conclusions reached by a limited sampling of other reports and studies.  The staff report does not provide a comprehensive examination of all (or even most) recent and high-profile academic or governmental studies.
  • In fact, the conclusion reached that “there is little consensus in the resulting literature” that excessive speculation plays a role in market bubbles or price volatility was actually a conclusion reached by two academics unaffiliated with and independent of the FTC (see page 21, footnote 62).
  • The staff then goes on to list their interpretations of a mere handful of studies suggesting that speculation is having an adverse affect on market prices (a total of four of the more than 75 studies, reports and analysis we’ve listed here).  And they also state that “at least as many reports conclude that futures markets do not have a systematic influence on spot prices for crude oil or other commodities as those reports that conclude the opposite.”

And, Ty Slocum of Public Citizen who is also a member of an advisory committee to the CFTC observed that "The staff report’s conclusions are NOT based on interviews with refiners or other market participants, or the result of information gleaned from subpoenas. This report essentially is a review of EIA data and some google news searches. The point of a government agency like the FTC is to utilize its powers to obtain information and interviews unavailable to other parties or academics." 

One has to wonder what the motivation for releasing such a "report" right before the Labor Day weekend really way.  

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