NEW YORK (Reuters) - When a politician trots out the mythical evil speculator as an explanation for why a market is not yielding cheap goods for consumers, you can be almost certain that the real reasons for rising prices are being ignored.
U.S. President Barack Obama’s latest attempt to blame speculators for high oil prices smacks of cheap electoral politics and ignores the awkward fact that regulators have hardly turned up much evidence of malicious market manipulation and prosecuted even fewer evil speculators.
Take, for instance, the highest profile action against alleged oil market manipulation undertaken by the Commodities Futures Trading Commission in recent years.
The CFTC alleges that the defendants in the case attempted to push up the West Texas Intermediate crude oil market to profit when it fell.
That’s right, the alleged manipulators were trying to profit from a market decline. It doesn’t fit with the view, widely propagated by politicians, that speculators are only interested in pushing prices ever higher.
The defendants, trading firms Parnon Energy and Arcadia Petroleum and some individuals, have all denied the CFTC’s allegations and are fighting the suit, arguing the CFTC has failed to show any legitimate cause for legal action.
Other cases of alleged oil market manipulation are also hardly moving forward with any speed.
A suit filed in 2008 alleging a trading firm attempted to manipulate the closing price of crude oil and refined products futures on several occasions in 2007 is still winding its way through the courts.
The Obama Administration would probably say the few cases being brought to trial and the feeble conviction record speaks to the fact that the CFTC is outgunned and understaffed for supervising commodities markets that have changed dramatically.
But let’s not let facts get in the way of a good narrative. These measures are about trying to assure voters that the government is going to magically lower oil prices by exorcising the demons from the market.
It builds on the reflexive belief among many consumers that market manipulation somehow lies at the root of higher oil prices.
No need to actually prove that oil prices are higher because of malicious speculation. A large segment of the population already believes they are.
So we can ignore awkward facts like the massive growth in consumption of oil worldwide in recent years and the limits to increasing supply imposed by geology, politics and ideology in producer nations which, unfortunately, control most of the world’s oil reserves.
Let’s also ignore the fact that the physical market hardly exhibits the symptoms of being awash in crude going begging for buyers. Or perhaps someone is spending hundreds of millions of dollars a day to buy up oil and keep it off the market.
And in the meantime let’s keep quiet about the role of speculators in the natural gas market, where prices have plunged to decade lows, giving American industry and consumers a major boost.
The irony is that this electoral-year posturing about speculators avoids touching on the growing debate over the role speculation plays in commodity price formation.
Recent criticisms of the efficient markets theory of price formation, such as Stanford University Professor Kenneth Singleton’s paper on the 2008 oil boom, suggest increased investor participation in commodity markets may have affected price formation.
Of course, Singleton’s position is far from being accepted by all experts in the field. Singleton himself admits that limited data on investor positions makes drawing firm conclusions difficult.
Here’s where Obama’s proposals may have a bit more merit, particularly the expansion of access to CFTC data. But taken by themselves these proposals offer voters little evidence that the government is about to wave its wand and lower oil prices.
And of course, if Singleton is right, it’s not market manipulation, but the simple impact of increased participation in the market by speculators that is responsible for some price action.
So instead it’s time to turn up the rhetoric, talk darkly about speculators “reaping millions” at the expense of consumers.
Of course we never get to meet these speculators who somehow alone are responsible for the rising price of oil, nor should we expect to.
Robert Campbell is a Reuters market analyst. The views expressed are his own