Thursday, September 3, 2009
You Read it Here First
Well, nearly. Last Wednesday I reported that there was something fishy about the FT reiterating that the CFTC was reiterating that banks might no longer be excluded from commodities futures trading limits. I said that the CFTC (probably with the cooperation of its faithful sidekick the FSA) was having a quiet word with the banks to get them to be at least somewhat compliant with existing exchange limits( the CFTC told the FT that it did not 'order' Nymex to enforce its own rules). Lo and behold, yesterday Deutsche Bank snatched its double long crude oil ETF (DXO) off the market when it bumped up to its Nymex limits. DXO is worth about $425 million, which shows just how pervasive these so-called index funds are in energy markets. Another niggling little problem by the name of United States Natural Gas Fund (UNG) has also raised some eyebrows. It seems the fund traded at 20% over its net asset value. It and its sister fund USO (crude oil) are both badly designed and have grown such that they can easily skew the futures markets. They will probably be the next to go. Many of these oil and gas ETFs came to market too quickly after the spike in 2007, and have grown far too large for what is a very limited underlying market. Around 1.2 billion barrels worth of crude oil futures trade on ICE and NYMEX every day. This about 50% more than the amount of actual crude oil produced globally (around 87 million b/d). Can you say 'manipulation'? Meanwhile I applaud BPs tenacity in the Gulf of Mexico. It has discovered another rich oil field that could have reserves of more than 3bn barrels. Maybe BP can help to stop the 'drill-baby-drill' in Alaska idiots in Congress.