Tuesday 28 July 2009

"FSA Clears Oil Speculators": Hmmm ...

The WSJ reckons the FSA is limbering up to "clear" oil speculators against the accusation that it is they who have caused recent oil market price swings and (which is not the same thing) volatility. This, at exactly the moment when the CFTC is said to be about to make that very case, reversing their previous position.

I was fairly adamant that it wasn't the speculators, until about 9 months ago when, despite my strong a priori inclinations I began to have doubts:

- the run to $147 bore all the hallmarks of a ramp

- starting last year, the front end of the WTI curve started being self-evidently distorted by dysfunctional ETF activity (covered extensively by Alphaville; go to their
Commodities tag)

- Brent is a very strange, non-canonical market and the underlying physicals are
becoming less liquid (again); so notwithstanding excellent overall liquidity there are ample grounds to be cautious.

There's another, ad homines issue: the FSA - sorry to have to say this - is notoriously ignorant about commodities (*sounds of gasping in the wings*). They have been silent on a whole range of glaring commodities 'issues' over the years in a manner that makes one conclude they just don't really care ('no widows and orphans in oil trading, old chap!'), and/or they really don't know what's going on. The Treasury certainly don't, and nor do HMRC, which leaves us ... where, exactly ? An OTC free-for-all, that's where.

Let's see the respective FSA and CFTC reports in due course. The former will probably be very short indeeeed.



James Higham said...

Why have they been silent about commodities?

Nick Drew said...

it's a puzzle, could write a long essay: some pointers & guesses

- UK has a strong OTC tradition compared to other nations: FSA takes the formal view that it can only get involved in OTC markets if activities there might impinge on orderly conduct on an RIE, and with this as a pretext seems to take two steps back (if it so chose it could use this as a pretext for getting actively stuck in!)

- "there are no widows and orphans ..." - a direct quote from a first-hand explanation. No, Mr FSA, but there are PENSIONS ...

- always seemed to me they felt they had enough on their hands with banks etc (hah!) and weren't anxious to go looking for more work

- there is, explicitly and formally, a light-touch regime for "Oil Market Participants" (OMPs) or "Energy Market Participants" (EMPs), as compared to that for other commodities and investment types

- this has parallels in Euro-law and in the US (where Enron very successfully lobbied for energy-market exemptions)

Based on the decision to downplay the whole sector, there really is a lot of sheer ignorance. You can easily search their www for such output on commodities as there is. Joke: their big commods survey / think-piece of 2007 doesn't mention the word 'Enron' once ...

Heaven knows what the Tories plan for this, I shall try to find out

Fausty said...

James, I'd like to know, too. Could it be that these speculators donate handsomely to election campaigns?

I'd be interested to see who, from Labour's benches, gets directorships in these companies.

Do we have any investigative journalists who will cover this, in the MSM? I doubt it.

I've just put a video on my blog which covers this.

Electro-Kevin said...

So the FSA knows SFA ?

Nick Drew said...

Fausty - you may like to have a look at this to get the juices flowing ...

EK - you might think that, I couldn't possibly ...