How oil speculators may be driving up prices

WASHINGTON — Almost all the economists who are studying today's high oil prices think that financial speculators are helping to drive up those prices, but hard data are lacking as to whether they're a major factor, and if so, how big a factor.

Michael Greenberger thinks that speculation is a major factor, and he knows a lot about the complex global oil market. He directed the division of trading and markets for the Commodity Futures Trading Commission from 1997 to 1999. That body regulates the trading of contracts for future deliveries of commodities, including crude oil, called futures, which drive oil prices. Now a law professor at the University of Maryland, Greenberger told McClatchy why he thinks that financial speculation is driving up oil prices.

Question: How do speculators drive up oil prices?

Answer: Speculators are able to drive up crude oil prices today because they're allowed to trade in the U.S. in futures markets not overseen by U.S. regulators. Therefore, they are free to dominate these markets by taking huge positions within them to dominate them. And there is an additional fear that, because of a lack of oversight, they may be engaging in manipulative practices — i.e. wash sales and false reporting that would be barred in a regulated environment.

Question: What is a "wash sale" and how does it work?

Answer: That's a prearranged trade between two or more parties in which there is no economic risk and the sole purpose of which is to give the appearance that the price of a commodity is going higher or lower in a way that does not reflect supply-and-demand fundamentals.

Question: Who are these speculators? Do they have names and addresses?

Answer: I really cannot answer that with certainty, because these unregulated markets are so opaque. Many say that Goldman Sachs & Co. and Morgan Stanley are primary traders on the principal market outside of direct U.S. supervision, the Intercontinental Exchange, otherwise known as ICE.

The whole point here is that we need transparency through a thorough investigation to determine precisely what is happening on the Intercontinental Exchange, including who key traders are and the positions they are taking in these markets. That transparency is provided regularly for those exchanges regulated directly by the CFTC.

Question: How much of today's record oil price is attributable to speculation?