The Commodity Futures Trading Commission has for the first time revealed that almost 95 per cent of US crude oil futures volume is generated by day trading or betting on arcane price relationships, suggesting long-term bets on whether prices will rise or fall have little effect on energy price volatility.
The US regulator released data showing that only 5.5 per cent of crude trading volume on the New York Mercantile Exchange involved net changes in large traders’ stance on price direction. Changes to net positions also involved a minority of volumes in metals and agriculture and in financial futures on markets such as Treasury notes, stock indices and exchange rates.
The detailed volume data from the CFTC’s trader reporting system followed a review of the “flash crash” of May 6 2010, when stock and other markets momentarily plummeted and prompted calls for the reform of electronic trading. The day traders who contribute to the majority of oil futures volume include so-called high-frequency firms, which typically exit the market without a net position at the end of the day.
The data appear after oil prices climbed to their highest levels in three years, prompting some lawmakers to redouble efforts to rein in investment funds pumping money into commodities as an asset class. Crude has since pulled back in a series of nerve-rattling moves, with the Nymex contract rising or falling more than 4 per cent on five days in May and June.
The CFTC, which has proposed rules limiting commodity investment, said the data for the first time show how much trading results in daily changes to net positions.
“The balance of trading is due to day trading or trading in calendar spreads,” said Gary Gensler, CFTC chairman. “The data show that, in many cases, less than 20 per cent of average daily trading volume results in traders changing their net long or net short [positions].”
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