An anonymous commenter on my previous post about overspeculation noted a recent report by the Federal Energy Regulatory Commission. I thought the ideas behind the comment were worthy of their own post. My reader cites the FERC’s “State of the Market 2008” review that points to the role that financial speculation played in raising energy prices last year. I think it is important to note that, according to their mission, FERC “regulates and oversees energy industries in the economic, environmental, and safety interests of the American public.” Unlike the CFTC, FERC works most closely with the power generation and transmission industries, not with the Wall Street firms that have profited so handsomely by promoting commodities as an investment class. Rather than rehash my anonymous reader’s report, I’ll (with appreciation for his/her efforts) repost it here::
FERC just released a report regarding 2008 nat gas prices. Their conclusion was:
“while physical market fundamentals, particularly storage levels, can explain why natural gas prices rose during the first six months of 2008, none of the market fundamentals were extreme enough to explain why spot Henry Hub prices reached $13.31/MMBtu by July 3.
…the rise in natural gas prices coincided with a global increase in many commodity prices. This increase in commodity prices occurred as large pools of capital flowed into various financial instruments that essentially turn commodities like natural gas into investment vehicles. Ultimately, we believe that financial fundamentals along with the modest tightening in the supply and demand balance for gas during the first part of 2008 explains natural gas prices during the year.”
Here’s the full report: http://www.ferc.gov/market-oversight/st-mkt-ovr/som-rpt-2008.pdf
I seriously hope we don’t “waste a crisis” and let commodity trading off the hook. Like most every bit of financial innovation that got taken to the n-th degree, it’s a cancer consumers and the world economy