CFTC Chairman Walter Lukken Offers His Ideas About Rising Oil Prices
Friday, May 30, 2008SUSIE GHARIB: Oil is at $127 a barrel and gasoline is nearing $4 a gallon. And as we reported last night, regulators at the Commodity Futures Trading Commission are now trying to find out whether traders are manipulating the market to drive prices higher. Washington bureau chief Darren Gersh spoke with acting CFTC Chairman Walter Lukken today. Normally CFTC investigations are not made public, so Darren began by asking Lukken why he's talking now.
WALTER LUKKEN, ACTING CHAIRMAN, CFTC: Well, I think the public deserves reassurance that somebody is policing these markets aggressively and properly. And so yesterday the commission took this extraordinary step to give that reassurance.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: You worked up on the Senate. I'm sure you are aware that there are a lot of senators, a lot of members of Congress who are absolutely convinced that speculators are manipulating this market. So far have you found any evidence that?
LUKKEN: Well, it's something we're keeping a close eye on. We closely follow the level of speculation in the markets. Something new that has come into our markets is this index funds, the pension funds that have come during this flight to quality to the commodity markets. So yesterday's announcement on transparency is going to allow us to see better into this type of funds coming into our markets to ensure that we are properly policing those areas.
GERSH: But you seem to distinguish between speculators and manipulators. And a lot of members of Congress don't seem to see much distinction there. I'm wondering why you think they are wrong.
LUKKEN: Well, speculators have been an important part of the commodity futures markets for 150 years. They ensure that there is a buyer for every seller and a seller for every buyer. And any farmer will tell you that there needs to be buyers for every seller. Otherwise the markets would not work. So it is important to have that liquidity in the marketplace.
GERSH: But in terms of the artificial influence on prices, there are a lot of rumors, speculation, pick your word, that there is hoarding going on in this market, that there are people who are somehow have got tankers out at sea, they are hording crude oil, they are not putting it on the market. You have access to a lot of information. Is there any evidence that this is happening, that people are somehow locking up the crude oil and waiting to turn the spigot when the price gets to where they want.
LUKKEN: I think it is important to distinguish that the futures markets are financial markets. They are not controlling physical crude oil, such as the cash markets where people buy and sell crude oil. This is for risk management purposes.
GERSH: But they influence what people do in the physical world.
LUKKEN: Exactly. And so that is what our investigation that was announced yesterday is attempting to find out, is are people hoarding in storage, in transportation, in other areas, and in the buying and selling of oil, are somehow artificially influencing the futures markets.
GERSH: But some of the people who have a lot of capacity are also Wall Street firms. Do you know how much capacity they have? Do they tell you? Do you know how much oil is sitting in their tanks?
LUKKEN: Well, that is something we have the regulatory ability to go ask them. And that's something that we're going to find out in this investigation, where all this oil is and what type of storage facilities are being used, who is controlling it, who owns it and try to figure out whether anybody is holding back oil from the marketplace.
GERSH: You mentioned pension funds and Calpers, the California public employees pension fund is a big participant in these index commodity funds. Why are people so skeptical of that and is there any evidence you found that that somehow has influenced the market because it is new money?
LUKKEN: Well, we have heard from the index funds. We had a hearing at the CFTC not long ago where Calpers testified. And a lot of these people are looking for diversification in their portfolio. We want to make sure that inflow into the commodity markets isn't pushing up prices artificially. Something we have looked at, index funding in some commodities such as live cattle and lean hogs are actually in negative territory this year even though a large percentage of that trading is index money. Some areas that have no index trading at all are at record high prices. So it's hard to find a smoking gun that index money is moving around these markets. But it's something we will continue to probe into the future.
GERSH: Walter Lukken, acting chairman of the Commodity Futures Trading Commission, thank you for your time and I hope you will come back when you have your results.
LUKKEN: Thank you, Darren.
