This article about the extent of oil speculation said the InterContinental Exchange opened a trading platform in London, allowing its founders to trade "vast quantitites of U.S. oil overseas without being subject to regulation." Such trading could occur without being subject to U.S. regulation, but the exchange is subject to British regulation.
Also, this article said that the U.S. Commodity Futures Trading Commission reported that financial firms speculating for their clients or themselves accounted for about 81 percent of the oil contracts on the New York Mercantile Exchange. The CFTC did not itself use the 81 percent figure. The CFTC reported data that shows that financial firms speculating for their clients or themselves accounted for about 81 percent of the oil contracts on the NYMEX.
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A Few Speculators Dominate Vast Market for Oil Trading
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"Investment banks had been frustrated with the established exchange because they really were never able to get control of it," said Michael Greenberger, a law professor at the University of Maryland and a former staff member at the CFTC.
The most successful of the private platforms was InterContinental Exchange, or ICE, founded by Goldman Sachs, Morgan Stanley and a few other big brokerages in 2000. ICE soon opened a trading platform in London, allowing its founders to trade vast quantities of U.S. oil overseas without being subject to regulation.
The exemptions for swap dealers and the development of overseas markets allowed big brokerages to open the door for more hedge funds, pensions and big investors to move into commodities.
In the coming years, commodity investments by funds could grow to $1 trillion, veteran hedge fund manager Michael Masters said in testimony before the Senate earlier this year. In an interview, he said this trend could raise commodity prices for everyone in the coming years and "have catastrophic economic effects on millions of already stressed U.S. consumers."
Meanwhile, commodities have been good business for big Wall Street brokerages. Its commodity trades helped keep Goldman Sachs profitable during the credit crisis, said Richard Bove, a banking analyst at Ladenburg Thalmann.
"Business is lousy right now," Bowie said of Goldman Sachs. "Commodities and currencies are clearly the strongest business they have right now."
In the coming months, swap dealers expect to have yet another venue for oil speculation. The CFTC has stated it would not stand in the way of trading in U.S. oil contracts overseas in Dubai. Goldman Sachs and Vitol are among the major investors in this new exchange.
