Excerpt from an article Commodities Regulators, posted on Naked Capitalism by Yves Smith.
Quelle Surprise! Commodities Regulators Lack Adequate Information About Their Markets
"One of the polarized and emotionally charged debates these days (Cassandra compared it to Israel vs. Palestine) is whether the runup in oil prices is due to speculation or fundamental forces. And these extreme views tend to drown out notions that complex phenomena or conflating factors might be at work.
One way to get to the bottom of this would be to look at data. But as we’ve noted, the information on oil is dubious at best. Consider this 2005 interview of peak oil proponent Matt Simmons (hat tim Jim Bianco):
"One of the more intriguing stories in "Twilight in the Desert’, Simmons’ new book on the state of Saudi fields, is paucity of reliable data on Middle East production in general and Saudi production, specifically. Simmons is one of the first people to point out the fact that much of the data underlying "official" production numbers are unreliable, based largely on the findings of Petrologistics, a "powerful" information collecting company located over a supermarket in Geneva, Switzerland.
According to Simmons, this company is usually the first one the media "glums" onto each month when the latest Middle East production numbers are released. This data, he alleges is gathered from a worldwide network of harbor "spies" located in the world’s top oil export countries.
"They look through a pair of binoculars and a sort of a gauge in their windows to check [tanker] plumb lines as to how much oil is being loaded into the tankers. And [Conrad Gerber’s] story is he can’t disclose the names of his harbor spies; he can’t even call them at home because when he used to do that, one of them got killed…
‘We have an energy data system created today that is simply rubbish.’"..
From the Wall Street Journal (Commodities Regulator Under Fire):
"Plaguing both sides of this debate is a shortage of data about a thriving sector of the market: the customized market for derivatives known as swaps. Wall Street banks such as Morgan Stanley and Goldman Sachs have developed swaps to allow pension funds, hedge-fund traders and commodity companies to bet on prices among themselves, largely outside the regulatory surveillance of the CFTC.
Investors can make larger trades through swaps dealers than they could make directly on a futures exchange. Until this month, the CFTC has not required Wall Street swaps dealers to routinely provide more detail on who these customers are.
"We’re trying to get our arms around the market…before we make hard-and-fast conclusions," Mr. Lukken told a Senate committee June 24…
Swaps have grown so popular that they are the primary means by which institutional investors have made massive bullish bets since 2002, totaling an estimated $260 billion in indexes linked to the price of a basket of commodities. At a hearing in early June, the CFTC said 85% of index investing is done outside of regulated futures exchanges.
The Bank for International Settlements, a global body that surveys central banks, puts the notional value of all over-the-counter commodity instruments at $9 trillion.
Because an estimated 50% or more of this market consists of instruments related to crude oil, a report from research company ISI Group says over-the-counter oil trading could be as much as 18½ times larger than the total oil bets outstanding on the main regulated energy-futures market, the New York Mercantile Exchange.
CFTC commissioner Bart Chilton says the lack of deeper data on this key market calls into question the CFTC’s previous conclusions about speculators. ‘We didn’t have the data that we needed to make the statements that we made," Mr. Chilton says. "And the data we did have didn’t support our declarative statements. If we were so right, why the heck are we doing a study now?’" Full article here.
