A follow-up to yesterday's "Oil, Gas Market Speculation May Face Restrictions by U.S. CFTC".
Goldman Sachs Group Inc. and Morgan Stanley may never have the same leeway in commodities as they did when oil reached a record $147 a barrel last year.
The Commodities Futures Trading Commission will consider greater regulation of oil, gas and other energy markets at hearings this month. It plans to review exemptions to trading limits that since the 1990s allowed Goldman and Morgan to build multibillion-dollar ventures in futures, swaps and over-the- counter markets.
“They’re very significant swaps participants, and they’re very significant dealers for over-the-counter swaps in the commodities market,” said Dan Waldman, former general counsel of the CFTC and a senior partner at Arnold & Porter LLP in Washington. “If their ability to do some of that business was limited, they’d have to find other ways to reduce their risk or reduce the size of their commodity swaps books.”
Energy swaps are trades in which parties exchange the difference between two price payments, one fixed and one floating, for a specific commodity for a period of time.
Goldman Sachs and Morgan Stanley accounted for about half of the $15 billion in revenue that the world’s 10 largest investment banks generated from commodities in 2007, Ethan Ravage, a financial-services industry consultant in San Francisco, estimated last year, as energy prices neared records.
On the other hand we've never been shy about commenting, see:
August 19, 2008: Goldman’s Oil Thesis: Timing is Everything
October 7, 2008: Goldman: We Got Our Shorts On, Oil not Going to $200.00
October 27, 2008: The Goldman Commodities U-turn, again
November 20, 2008: It’s official, Goldman capitulates on oil
December 2, 2008: Oil speculation: It's back
December 12, 2008: Goldman Cuts Oil Forecast to $45 (vs original $200) Sees Bottom
June 4, 2009: Goldman Raises Year-End Crude Forecast by 31% to $85
Always, always be skeptical of anything Goldman says regarding commodities.*
J. Aron is one of the company's crown jewels and was the springboard for CEO Lloyd Blankfein.**...
...*From our November 20, 2008 post "It’s official, Goldman capitulates on oil":...Now Goldman is left with the ignomy of summarily abandoning the investors who listen to its research calls, telling them effectively that they’re on their own. On Thursday, Goldman said it was ”closing” its recommendations for oil trades. Meaning that in a perilous time when the traders who pay attention to Goldman’s recommendations could use some guidance the most, Goldman has opted to give them the least. And some traders are furious about it, comparing the maneuver to then-strategist Abby Cohen’s decision to abandon her targets for equity indexes in the fall 2001, citing the uncertainties abounding in the market.Goldman marketed the fact that CalPERS and other long-only index buying institutions could piggyback on GS's status as a 'commercial' to avoid position limits by entering into swaps with the bank. The institutions thought it was a sweet deal, until it wasn't. If it comes down to throwing customers under the bus or protecting the propritary trading, there's no decision.
Goldman specifically talked about four trade recommendations it previously issued, and said clients shouldn’t put any stock in them any longer. One particular trade, a Nymex-WTI swap on the 2012 contract, issued in September, when crude already had declined to below $70, suggested that the contract would reflate to a range of $120 to $140. Obviously, that hasn’t happened....MORE
**"When Blankfein asked about his title, a boss at J. Aron said,
'You can call yourself contessa if you want.'"
-Fortune, January, 2006
June 5, 2009: Are Goldman's Oil Swaps Clients Piling Back Into Oil?