weren't so wrong.
It seems the CFTC (Commodity Futures Trade Commission) has been poking around the edges after everyone has been poking sticks at them:
The Commodity Futures Trading Commission has changed the reporting classification of one massive participant in the market for NYMEX crude oil futures from "commercial" to "non-commercial" after reviewing its trading activity and concluding that "commercial hedging or risk management activities did not constitute a significant part of the overall trading activity."
This single institution had huge long-short spread positions amounting to
around 327 million bbl of crude oil, and amounted to around 20% of the
entire futures and options positions previously attributed to producer and
consumer "hedgers".
There are not many institutions in the world capable of running positions on this scale. The spread risk is enormous.
Moreover, the CFTC concluded that this position has been essential non-commercial (ie non-hedging) since at least the start of Jul 2007 because it has retroactively changed the reporting of positions all the way back to Jul 2007.
The revisions are not confined to crude oil and apply to other NYMEX energy contracts. There has been a similar but much smaller revision to the reporting of natural gas positions. It again affects a single institution (probably the same one) with a mixture of spreading positions but with a more pronounced short bias in the case of natural gas.
Further explanation states:
Further details are available from the CFTC website, but the relevant sections are attached below:
Special Announcement - July 18, 2008
Effective with this week's Commitments of Traders (COT) report, the
Commission staff has reclassified certain positions in the energy futures
and options markets from the Commercial category to the Noncommercial
category. As described in the Backgrounder for the COT report, reportable
traders provide information to the Commission, on a market-by-market basis, on whether they use a market for commercial purposes, i.e., use a market for hedging or risk-management. This information is normally the basis used for determining a trader's classification as a commercial trader in the COT report. However, Commission staff periodically evaluate these classifications and will change a classification in light of new or
additional information. In this instance, information provided as part of a Commission Special Call to select market participants improved the
Commission's knowledge of certain business operations, resulting in the
reclassification of certain positions because commercial hedging or risk
management activities did not constitute a significant part of the overall
trading activity.
Sorry such a long quote but it is important to get what they are after.
You say - so what?
Well, the change of classification is a huge deal. See, if you are a "commercial", then your trades are hedges and as such the rule is "take however much you need" because your trades are just offsetting your physical positions, therefore you can't be overly influencing the markets.
If you are a "non-commercial", then there are specific legal limits on how much you can trade. This shift means that the effected entity may have to liquidate trades to get back into limits.
Note the timing of the announcement and the trend in oil prices since then - hmmm?
UPDATE
Well, it seems the rest of the trading industry is taking notice. Reuters today has this:
1:28 05Aug2008 RTRS-Big CFTC data revision raises oil traders' eyebrows
By Robert Campbell
NEW YORK, Aug 5 (Reuters) - A quiet data revision that has boosted by nearly 25 percent the number of oil futures contracts U.S. regulators think are held by speculators is raising eyebrows in the energy trading community.
The revision means that speculators controlled 48 percent of the open interest in NYMEX crude oil futures and options as of July 15, compared with just over 38 percent under the previous classification. (my emphasis)
"That's huge when you look at the numbers," said Phil Flynn of Alaron Trading in Chicago.
"It changes the whole way you look at the recent moves in this market."
The U.S. Commodities Futures Trading Commission announced on July 18 that it was reclassifying some trading positions that it had reported as commercial hedging positions as noncommercial speculative positions.
The data revision converted approximately 327,000 long and 330,000 short NYMEX crude oil futures and options positions into mostly spreading positions held by speculators.
The big shift is all the more surprising, oil traders and analysts said, since the CFTC reclassified only one unidentified oil trader at the same time as the data revision.
"There may have been multiple 'positions' which were reclassified ... but they all appear to have been held by just one trader, and this was a very special trader, with an enormous concentration of positions in crude oil amounting to perhaps 460 million barrels, and not much interest in anything else," noted John Kemp of RBS Sempra Commodities.
Again, this means that the run up had a significant speculative component - even the industry says so. My question - why didn't the MSM even note this in passing?