If you caught the webcast of today’s third (and final) day of hearings on the role of speculators in the energy markets, you were treated to odd-yet-appropriate music at the end of the broadcast: a version of Joni Mitchell’s song “Both sides now,” which includes this refrain:
“I’ve looked at clouds from both sides now,
From up and down, and still somehow,
It’s cloud illusions I recall,
I really don’t know clouds, at all.”
After four hours of testimony and back-and-forth one comes away with the feeling we “really don’t know energy markets, at all.”
For example, Paul Cicio, president of the Industrial Energy Consumers of America, said oil and natural gas prices were driven up last year and early this year despite a good supply/demand balance. He noted that at the same time as the price spikes, U.S. Oil Fund and U.S. Natural Gas Fund (index funds that let small investors buy energy futures) saw their shares of those markets increase significantly.
Common sense says speculators must be the cause, Cicio said during testimony.
“We urge this commission to ban this fund and ones like it from participating in the futures market,” Cicio said.
John Hyland, the Chief Investment officer of the funds, said if anything they have put a damper on price swings because most of the fund purchases have happened as prices were dropping and sales occurred as prices rose.
“Any time someone tells you that common sense tells you something, that just means they don’t have the data to support it,” Hyland said. “It’s little more than self-serving statistical gibberish.”
Michael Greenberger, a former CFTC staffer now with the University of Maryland said he interpreted the CFTC’s charter to require them to actually find definitive evidence that excess speculation caused prices to move artificially. So far it doesn’t appear anyone has definitive proof that has happened.
CFTC Chairman Gary Gensler disagreed and even had CFTC General Counsel Dan Berkovitz take the microphone to repeat his interpretation of the CFTC’s powers from last week: that the CFTC doesn’t’ need to prove manipulation in order to act and put limits in place.
In other words, the CFTC doesn’t need to know there was manipulation — just that it’s possible — in order to impose limits.
But Commissioner Michael Dunn closed the session saying he thought it was clear the CFTC doesn’t currently have the powers to set trading limits on over-the-counter trades or in foreign exchanges. It would need Congress to grant it more powers and work with overseas exchanges to create uniform standards.