The CFTC last Friday published its first ‘disaggregated‘ version of its weekly commitments of traders report, which aims to provide more detail about commodity market participants, and especially, the role of speculators in determining prices.
But how much use is it for those hunting for evidence of speculator evil-doing – or of speculator exoneration?
The new categories:
Previously, the CFTC broke commodities futures traders into two groups: ‘non-commercial’ (ie, speculators) and ‘commercial’ (ie, those who trade oil as part of their business).
The new system uses four categories: Producer/Merchant/Processor/User; swap dealers; managed money and other reportables.
The first category, Producer/Merchant/Processor/User, is fairly self-explanatory: entities that are engaged in real-world oil business. The second category, “swaps dealer”, is an entity that deals primarily in, well, swaps (with either commercial or speculative participants) and engages in the futures markets to hedge those swaps.
The CFTC describes the difference between “Producer/Merchant/Processor/User” and “Swaps dealers” as such:
For example, a trader that has filed for an exemption from Federal position limits on the basis of their corn processing requirements would likely be placed in the producer/merchant/processor/user category, whereas an investment bank that seeks an exemption on the basis of their swaps activity in corn would likely be placed in the swap dealer category.
“Money managers”, meanwhile are those who trade futures on behalf of clients, and include hedge funds. “Other reportables” is everyone else.
What does the new report show?
As Reuters wrote on Friday, the first disaggregated report shows, maybe, that speculators do play a role in raising prices by collectively holding more long than short positions:
In theory at least, Friday’s report showed that managed money provided a base for higher commodity prices by being net long on some markets that commercial producers were short.
For instance, managed money was net long on 62,004 contracts of NYMEX crude oil, versus a net short of 125,206 lots held by commercials.
But the Reuters story continued with underwhelmed comments from market participants who were sceptical that they were getting any particularly new or useful data. Meanwhile, as FT Alphaville reports, BarCap uses the same report to conclude that speculators were not raising prices.
Olivier Jakob of Petromatrix spells out some of these ambiguities.
For one thing, he says, the new report does not cover all commodities – the CFTC will extend the number of commodities it covers, but Jakob notes it doesn’t yet cover WTI financial futures. He says large speculators were net short by 24,813 WTI financial contracts, so the disaggregated report, as it stands, “will overestimate the net length and price impact of large speculators”.
Secondly, he says, those categories are not that revealing. Jakob says the CFTC has basically split the old ‘commercial’ category into – the “Producer/Merchant/Processor/User” and the “swap dealers” that we outlined above. But as for the non-commercials:
However the “old Non-Commercial” category (what we call the Large Speculators) is split between “Money Managers” (defined as CTA’s, CPO’s and hedge funds identified by the CFTC regardless if they are registered) and “Other Reportables” a category that include other non-identified speculators. An ETF like the USO or the UNG is a CPO so its positions will fall under “Money Managers” rather than “Swap Dealers”. This also means that true hedge funds are
likely to find their positions mixed between the “Money Managers” and the “Other Reportables”.
In other words, those financial speculators, with no involvement in the physical oil world, are now potentially split between two categories.
And to further confuse things, don’t forget that some of those “commercial” participants (aka physical, aka the new Producer/Merchant/Processor/User category) are sometimes involved in both commercial and non-commercial activities. Big oil companies, for example, have proprietary trading desks.
To be fair, the CFTC notes that it categorises each individual trader, rather than lumping everyone from one company together in one category. But it notes that some of those individual traders themselves are engaged in more than one type of activity:
Some traders being classified in the “swap dealers” category engage in some commercial activities in the physical commodity or have counterparties that do so. Likewise, some traders classified in the “producer/merchant/processor/user” category engage in some swaps activity. Moreover, it has always been true that the staff classifies traders not their trading activity. Staff will generally know, for example, that a trader is a “producer/merchant/processor/user” but we cannot know with certainty that all of that trader’s activity is hedging.
So far the CFTC has only provided this new disaggregated data for one week – but it plans to reproduce the past three years of historical data in this format.
While it will be interesting to see how last year’s oil price spike shows up, it’s unlikely to provide much for either the critics of speculation, or the defenders.
About the commitment of traders report (CFTC)
Explanatory notes of the new categories (CFTC)
Commerzbank blames oil speculators (FT Alphaville, 21/08/09)
The murky task of curbing speculation (FT Energy Source, 28/07/09)