A study by the Baker Institute For Public Policy at Rice University claims that the CFTC used wrong models in last year’s report that speculation had nothing to do with the volatility in oil prices.
The New York Times reports that the study argues that the CFTC failed to factor in the rise in the number of speculators in the market – most of which were betting on higher fuel prices.
“Shifting aggregate expectations due to relatively tight short-term fundamentals and changing composition of market participants are not aspects the C.F.T.C. normally examines, and these factors are indeed essential to the proper analysis of the question of the role of speculators in price formation,” the two said in the study. “Thus, it can be argued that the models employed were not adequate to answer the types of questions being asked.”
The study claims that the CFTC’s conclusion at the time was politically motivated. It could very well have been – even though a lot of outside experts and economists agreed (including T. Boone Pickens and Phil Verleger).
However, whether or not the models were accurate is only of tangential relevance to the discussion going on at this time about placing limits on speculation. As we have said many times on this blog – any future contract is speculation. Speculation is a global phenomenon. Trying to impose limits in the US (home to the best regulated commodities markets in the world) – will likely increase and not decrease volatility in the energy markets.
Gad Barnea – CEO – FlyMiwok, Inc.
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