I’ve been dismissive of accusations that speculation is responsible for most of the oil price run up.

I have always suggested that arbitrage might cause excessive volatility, but have been dubious on the idea that speculators are responsible for most, or even much, of the current oil price run up.

Unlike electric power, where one can shut down a plant to juice the market, you can’t hide all that oil, you have to pay to put it somewhere

Well, the CFTC just discovered that Vitol, a company that thought to primarily be in the business of hedging oil for large consumers, like Southwest Airlines, to save costs, has been aggressively holding huge amounts of futures contracts as a speculative investment too, at one point holding about 11% of all trades on the New York Mercantile Exchange (Nymex).

So the CFTC now pegs the percentage of speculative, i.e. non-consuming, trading at around 81% of volume.What’s more the CFTC found out about this by mistake.

I still believe that the primary cause of the run-up was supply and demand lines crossing, but with this level of speculation, and this level of leverage, it’s reported that Vitol could have purchased over $8 billion in oil futures for less than $1 billion, it’s possible that there were issues of excess volatility and over-shoot on the price of oil.