Hilary Till, research associate with the EDHEC-Risk Institute, discusses the latest EDHEC-Risk position paper on the issue of whether there is excessive speculation in the US oil futures markets, the transparency of global oil markets and changes in the commodities markets. In this interview, she also discusses how her research on the oil derivatives markets could have broader applicability within over-the-counter financial derivatives markets.

Q: You have recently written an EDHEC-Risk Position Paper entitled ‘Has There Been Excessive Speculation in the US Oil Futures Markets?’. This is a follow-up to research that you carried out in 2008, but is based on new data released by the Commodity Futures Trading Commission in the US. Could you tell us about this new data?

A: Yes, on October 20th, 2009 the CFTC released three years of enhanced market-participant data for 22 commodity futures markets in its new “Disaggregated Commitments of Traders” (DCOT) report. As noted in the new EDHEC-Risk position paper, this is a welcome announcement of additional transparency into the workings of the US commodity futures markets. This new data is important because we can now evaluate whether the balance of outright position-taking in the US exchange-traded oil derivatives markets has been excessive relative to hedging demand during the past three years.

Using this new data and with some notable caveats, one can conclude that speculative position-taking in the US oil futures markets does not appear excessive when compared to the scale of commercial hedging over the past three years. As noted in the paper, though, we have to be very careful on how strongly we state this conclusion. For example, we do not examine whether there was excessive speculation in the oil markets in other venues besides the US oil futures markets.

Q: How difficult is it to distinguish between speculative position-taking and regular commercial hedging?