From the Interagency Task Force on Commodity Markets, via Mark Perry:
Force's preliminary assessment is that current oil prices and the
increase in oil prices between January 2003 and June 2008 are largely
due to fundamental supply and demand factors. During this same period,
activity on the crude oil futures market "“ as measured by the number of
contracts outstanding, trading activity, and the number of traders "“
has increased significantly. While these increases broadly coincided
with the run-up in crude oil prices, the Task Force's preliminary
analysis to date does not support the proposition that speculative
activity has systematically driven changes in oil prices.
world economy has expanded at its fastest pace in decades, and that
strong growth has translated into substantial increases in the demand
for oil, particularly from emerging market countries. On the supply
side, the production of oil has responded sluggishly, compounded by
production shortfalls associated with geopolitical unrest in countries
with large oil reserves. As it is very difficult to rely on substitutes
for oil in the short term, very large price increases have occurred as
the market balances supply and demand (see top two charts above).
a group of market participants has systematically driven prices,
detailed daily position data should show that that group's position
changes preceded price changes. The Task Force's preliminary analysis,
based on the evidence available to date, suggests that changes in
futures market participation by speculators have not systematically
preceded price changes. On the contrary, most speculative traders
typically alter their positions following price changes, suggesting
that they are responding to new information "“ just as one would expect
in an efficiently operating market.
Congress and other agencies have commissioned studies of this type on oil markets and prices approximately every 90 days or so for the last 35 years, and every one of them have come to the same conclusion: Oil markets move based on the participant's best guesses about trends in supply and demand. Duh. As I wrote previously, the last hydrocarbon price manipulation case I have seen in court was aimed at a group that allegedly manipulated prices for 30 seconds at the end of a trading day whose closing price affected certain contracts. And it is not clear that they were successful.