JP Morgan says speculators don’t cause oil price swings

Over ninety percent of the market swings in oil prices since 2006 were due to supply shocks, not price speculation, JP Morgan said Wednesday in a study that questions tough market curbs proposed on commodity investors.

“It is often heard in non-market circles that if speculators move prices, then removing speculators from the equation would reduce prices,” JPM, one of the leading voices in commodities among Wall Street banks, said in the study. “The conclusion that speculative positions drive prices higher is due to an incomplete analysis that excludes the effect of economic news and looks at prices and futures/index positions in isolation,” it said.

Focus on commodity speculators reached unprecedented heights after oil and food prices soared to record peaks last year just before the global recession set in. The US Commodity Futures Trading Commission, which blames speculators for such volatility, has proposed tough rules that will limit the number of futures contracts that hedge funds, investment banks and other noncommmercial investors can control in markets like oil and grains. Such rules could have an impact on the business of banks such as JP Morgan, that are major players in the commodity markets, offering hedging and trading services to customers around the word.

To provide more clarity on investor and price behavior, the CFTC released two months ago historical data dating back to 2006 on investor holdings in major US commodity markets.

Wall Street banks such as JPM and Barclays Capital , another commodities powerhouse, have studied that data and concluded that speculators have little to do with the price moves in at least oil, if not other commodities.

JPM said its analysis showed most of the oil market volatility over the last three years was closely related to inventories of crude oil and movements in the US dollar, the currency that oil and most commodities are traded in.

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