CFTC: Speculation doesn't affect oil prices. No, wait, it does.

The Commodity Futures Trading Commission today announced charges against Optiver, a Netherlands-based trading firm with Chicago offices, accusing it of manipulating oil, heating oil and gasoline prices in March 2007. The company is accused of driving prices both up and down to a profit of more than $1 million.

plaat_abouus_1 Image from Optiver web site.

From a press release on the complaint:

According to the complaint, the defendants employed a manipulative scheme commonly known as “banging” or “marking” the close. “Banging the close” refers to the practice of acquiring a substantial position leading up to the closing period, followed by offsetting the position before the end of the close of trading for the purpose of attempting to manipulate prices.

Here’s a link to the complaint, as well as recorded phone conversations between the company’s traders and transcripts (on the right side of the page). Most of these guys seem to be Dutch as there are many minutes of conversations in that language.
The charges may seem to contradict the report the CFTC released Tuesday that concluded “… fundamental supply and demand factors provide the best explanation for the recent crude oil price increases.”
More specifically, that report said:

According to the above analysis, between 2003 and 2008, the correlations between position changes and price changes tend to be quite variable. While it is true that the positions of non-commercial traders in general, and hedge funds in particular, often move in the same direction as prices, these correlations, standing alone, do not provide definitive information about causation. Thus, further assessment of the dynamic relations between position changes and price changes is warranted.

In other words, even though markets tend to move in the direction hedge funds want them to, they don’t have definitive proof of a cause-and-effect relationship. Is that enough proof for you?
At the press conference to announce the case against Optiver this morning a number of reporters questioned the timing, given all the criticism Congress has heaped on the CFTC on policing oil prices and the pending debates and votes on anti-speculation laws:
“The Division of Enforcement brings cases as they’re ready,” said CFTC Acting Chairman Walt Lukken. “I categorically deny it. This is not a politically motivated complaint.”