The U.S. Commodities Futures Trading Commission (CFTC) has revised the findings of their previous review of the number of oil futures contracts held by speculators. The revision was released via a “Special Announcement” on July 18th, and the CFTC now asserts that speculators control 48% of all open interest oil contracts. This new figure represents a 25% increase over the CFTC’s previous view of speculator activity in the oil futures market. This is a serious revision and casts doubt on the CFTC’s previous analysis, released earlier in July 2008, that current oil prices are being driven by fundamental supply and demand factors. 

 

Here is the text from the CFTS’s special announcement and a link to their report:

 

“Effective with this week’s Commitments of Traders (COT) report, the Commission staff has reclassified certain positions in the energy futures and options markets from the Commercial category to the Noncommercial category. As described in the Backgrounder for the COT report, reportable traders provide information to the Commission, on a market-by-market basis, on whether they use a market for commercial purposes, i.e., use a market for hedging or risk-management. This information is normally the basis used for determining a trader’s classification as a commercial trader in the COT report. However, Commission staff periodically evaluate these classifications and will change a classification in light of new or additional information. In this instance, information provided as part of a Commission Special Call to select market participants improved the Commission’s knowledge of certain business operations, resulting in the reclassification of certain positions because commercial hedging or risk management activities did not constitute a significant part of the overall trading activity.

In the interest of transparency and for the purpose of identifying the impact of these changes, as the COT report is released today, we will also publish additional tables that show data for this week’s COT reports for energy markets, that reflect how they would have looked had these updated classifications not been made. Those tables are accessible through these links: Futures Only; Futures and Options Combined. The CFTC also intends to publish revised historical COT data for these markets next week.”

Again I think the theory of Information Cascades is at play here, and would encourage you to read the article I wrote for Ontario Dentist titled “Booms and Bubbles”.