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Report: One trader held 11 pct of Nymex contracts

Report: One trader held 11 pct of Nymex contracts

A single energy conglomerate held 11 percent of all contracts on the New York Mercantile Exchange at one point last month, according to a published report Thursday, suggesting that speculators may have played a larger part in volatile oil markets than once thought.
The Commodity Futures Trading Commission made an unusual request last month for data from Vitol Group, a private Swiss energy company that regulators thought was helping industrial firms get the oil they needed, according to The Washington Post.
The commission discovered, however, that the Vitol would be better described as a speculator, trading oil contracts to turn profits rather than assisting companies that actually needed oil delivered for their operations.
The report comes one month after the Interagency Task Force on Commodity Markets, chaired by the commission, released an interim report saying record oil prices were the result of "fundamental supply and demand factors."
"It is now evident that speculators in the energy futures markets play a much larger role than previously thought, and it is now even harder to accept the agency's laughable assertion that excessive speculation has not contributed to rising energy prices," said Rep. John Dingell, a Michigan Democrat.
Dingell told the Post it was "difficult to comprehend how the CFTC would allow a trader" to acquire such a large oil inventory "and not scrutinize this position any sooner."
A number of lawmakers have blamed speculators for the spike in oil prices and last week, four Democratic senators asked for an investigation into the commission's report, which they said was based on flawed information.
The commission never named Vitol. The Wall Street Journal identified the company in a report Wednesday which cited unidentified people familiar with the matter. The Post cited two anonymous sources that it said had direct knowledge of the commission's request in their report.
The commission investigation showed Vitol was one of the most active traders of oil on Nymex as prices reached record levels.
By June 6, Vitol had amassed contracts equal to 57.7 million barrels of oil, about three times the amount the United States consumes daily. On that day, the price for a barrel of oil spiked $11 to settle at $138.54, per barrel, valuing Vitol's oil holding at nearly $8 billion.
Vitol said its positions in the market on that day suggest it was operating as any commercial trader would.
"The Vitol Group's net crude futures position on the main international exchanges on 6th of June was in fact short eleven million barrels," said company spokeswoman Victoria Dix. "This short position reflects the Group's extensive use of the exchanges for managing price risk on the physical oil it supplies, as is standard practice throughout the oil industry.
The Vitol Group ships more than four million barrels of crude oil and petroleum products each day to international markets, Dix said.
Commission documents do not show how much Vitol had put down to acquire the contracts it held by June 6. Nymex allows traders to acquire contracts by putting up margins, which can amount to a fraction of the actual worth.
So-called "swap dealers" operate in oil markets by investing on behalf of hedge funds and wealthy individuals who have no plans to take delivery, or buy an actual contract for oil.
The commission's data show that at the end of July, just four swap dealers held one-third of all Nymex oil contracts that bet prices would increase.
Last month, the commission reclassified a huge oil trader as a noncommercial speculator. Industry analysts immediately began to rethink what might be moving oil prices.
Commodities traders rely on weekly reports from the commission that classifies market players as commercial or speculative, without releasing names.
Those reports are coming under increased scrutiny as traders begin to question the transparency of the market.
It is difficult to classify market players, however, because some banks and hedge funds actually own infrastructure, such as storage tanks and pipelines and power plants. Like airlines and other businesses that try to protect themselves from crude price swings, they too may be hedging.
The commission continues to pour over a massive amount of data submitted by large traders and it is asking for additional information.