Sometimes Ya Just Don't Need a Reason!

We chose the topic in yesterday's little lecture about how peaks in crude oil prices seem to be accompanied by events that one might deem, well, let's just say suspicious.
 
On Tuesday commodity prices fell once again in part due to the ongoing fears about an over supply of oil at a time when refiners have cranked up output to meet peak driving season demand. But now that's gone and the nation is awash with oil just as the economy is apparently slowing.

But energy prices also felt the pressure of possible trading restrictions on speculators if the Commodity Futures Trading Commission gets its way. It will spend this month and next determining whether it should regulate the size of investors' positions in futures, ETFs and index futures.
 
Political requests to the CFTC have resulted in those hearings after Senators blamed speculators for running prices to a record last year. In 2009 a 41% rise in the price of oil has come at a time when inventories have risen and demand has fallen. So much for supply and demand!
 
Exchanges currently apply position limits but the CFTC is trying to determine whether position limits should be imposed on traders and speculators alike especially in energy and other markets where supply is finite.
 
When markets start to trend, they take on a new lease of life and create additional liquidity. Many commodity trading advisors (CTAs) make the best part of their returns from trending markets. Some investors fear that by capping position size, liquidity will suffer and so increase volatility.
 
Yesterday we noted that when crude oil prices spiked recently at $73.50 they did so on volume around 16-times the daily oil output of the kingdom of Saudi Arabia. In the same manner, index funds and ETFs, which track certain commodity market can hold oil contracts, for example, in excess of the available amount of supply.
 
Now of course you shouldn't think that any new rules will affect the little guy. Rather these rule changes would be aimed at big hitters in macro-style funds that have significant amounts of capital behind them. But it's a sign of things to come. At the end of the day, no one should be bigger than the market and those that are shouldn't be above the law.
 
Soybeans fell in price as perfect crop appears to be basking in perfect weather conditions. Slowing economic growth undermined the price of cattle as it was widely assumed that consumers will switch to cheaper pork products, which conveniently rose in price. And weaker energy prices saw sugar prices decline in sympathy - yes, there is a relationship, since sugar cane can be used to make an oil substitute known as ethanol.

Sincerely,

The Supreme Council of the Secret Order of Jurojin