By Chris Baltimore
Reuters
Monday, June 26, 2006; 10:15 PM
WASHINGTON (Reuters) - A flood of speculative cash has spurred the run-up in crude oil futures prices since 2000, and Congress should require disclosure of more data on U.S. energy contracts bought and sold on overseas exchanges, according to a congressional report released on Monday.
The report by the Senate's Permanent Subcommittee on Investigations finds that U.S. regulators, including the Commodity Futures Trading Commission, lack the ability to track "futures look-alikes," over-the-counter contracts that are based on U.S. futures contracts and traded overseas.
In particular, the panel said that U.S. crude oil, gasoline and heating oil contracts traded on the Intercontinental Exchange Inc.'s (ICE) London bourse were impacting energy prices and large trades should be reported to U.S. regulators.
About 30 percent of crude oil futures for West Texas Intermediate, the U.S. benchmark, are traded on ICE Futures, the exchange's London exchange, according to data that ICE provided to the panel.
The CFTC declined to comment on the report.
While traders at the New York Mercantile Exchange must keep detailed records and report large trades, the CFTC in January allowed ICE to use U.S. trading terminals to buy and sell U.S. crude oil futures on its London exchange. Because they are traded over the counter, those contracts are not subject to CFTC oversight.
U.S. traders "now can avoid all U.S. market oversight or reporting requirements by routing their trades through the ICE Futures exchange in London instead of the NYMEX in New York," the panel said in its 57-page report.
Congress should extend the CFTC's authority and require large trades originating from U.S. shores, including over-the-counter futures "look-alikes" traded on ICE Futures, to be reported to the CFTC, the panel said.
"This action is necessary to preserve the CFTC's ability to oversee energy futures markets," the report said. Legislation that would require Congress to take such steps is currently before the Senate Agriculture Committee.
Earlier this year, ICE launched a WTI crude oil futures contract, the first listed by a foreign board of trade for which the product underlying the contract was produced and stored in the United States.
The panel's findings coincide with a public CFTC meeting on Tuesday where regulators will discuss whether foreign-based trading should be subject to its regulations.
ICE declined to comment on the congressional report and referred parties to testimony of ICE Futures Chairman Bob Reid prepared for Tuesday's CFTC hearing which argue against more regulations.
There, Reid says that WTI futures contracts traded on the ICE London exchange don't raise surveillance concerns because the are settled with cash rather than physical delivery of oil or refined products.
ICE Futures reports large positions in its cash-settled futures contracts to the United Kingdom Financial Services Authority -- the U.K. equivalent to the CFTC -- Reid said, and the CFTC can review them through existing agreements.