Revision of Oil Futures Data Raising Eyebrows

[a1bion]

I've had a hunch something like this was going on, what with some of the big one day price swings we've had in oil futures. Very curious.

NEW YORK (Reuters) - A quiet data revision that has boosted by nearly 25 percent the number of oil futures contracts U.S. regulators think are held by speculators is raising eyebrows in the energy trading community.

The revision means that speculators controlled 48 percent of the open interest in NYMEX crude oil futures and options as of July 15, compared with just over 38 percent under the previous classification.

"That's huge when you look at the numbers," said Phil Flynn of Alaron Trading in Chicago.

"It changes the whole way you look at the recent moves in this market."

The U.S. Commodities Futures Trading Commission announced on July 18 that it was reclassifying some trading positions that it had reported as commercial hedging positions as noncommercial speculative positions.

The data revision converted approximately 327,000 long and 330,000 short NYMEX crude oil futures and options positions into mostly spreading positions held by speculators.

The big shift is all the more surprising, oil traders and analysts said, since the CFTC reclassified only one unidentified oil trader at the same time as the data revision.

"There may have been multiple 'positions' which were reclassified ... but they all appear to have been held by just one trader, and this was a very special trader, with an enormous concentration of positions in crude oil amounting to perhaps 460 million barrels, and not much interest in anything else," noted John Kemp of RBS Sempra Commodities.

http://uk.reuters.com/article/oilRpt/id ... dChannel=0

[IHateUGAlyDawgs]

translate that for me.

[a1bion]

You have people who buy futures contracts on a commodity (in this case oil) because their industry uses that commodity and they want to lock in a specific price at which they want to buy that commodity at a specific future date. So say I run a company that uses a lot of oil and I want to ensure that a year from now, I can buy oil at the price it is currently at, I purchase a contract on it for the price and date I want. Next year rolls around and I can get my oil at the price on my contract and if oil in the market costs more, I just saved my company money.

Then you have people who are speculating on the price of a commodity--they'll never actually take delivery of the commodity. They're just making bets on where the price is going to go.

What this article means is that there are a lot more people speculating than anyone previously thought there were, which would explain why prices have had such big short term runs to either direction.

[IHateUGAlyDawgs]

gotcha.

So, part of the cost rise has been due to overspeculation?

[a1bion]

That would be my opinion. A lot of futures contract have range limits when they trade, which means they can only go up or down a certain number of dollars on any given day. If the price goes past that limit on a day, it triggers a "lock-limit" and the contract stops trading. There was one day a few months back where the price of oil futures got within a penny or so of the lock-limit and traded at that level until the end of the session. It was like the traders knew where the limit was and were deliberately not crossing it to avoid trigger the lock limit. That was the day that got me suspicious. That and some of these days when there have been big swings on not so important news. It just seemed like the fundamentals were getting away.

[TTBHG]

When the president of OPEC comes out and says that the fundamentals of oil says the price should be around $50-80/barrel for oil and the price is $147 and change/barrel then the speculators have their dirty fucking hands in the pot. In short, color me fucking shocked by that article.

[annarborgator]

So that one trader accounted for that much market activity, eh? I really wonder who that was. Very intriguing stuff.

[IHateUGAlyDawgs]

anyway to fix it? Or is it just what it is at this point?

[IHateUGAlyDawgs]

More oil info:

http://www.economist.com/finance/displa ... tures_box3

[a1bion]

Close the Enron Loophole.

http://blogs.abcnews.com/politicalradar ... seeks.html