Oil Speculation Limits Weighed
Wednesday, July 29, 2009
Federal regulators moved closer on Tuesday to issuing new rules to limit oil speculation, addressing concerns that Wall Street firms may have manipulated the price of oil through financial trading.
The Commodity Futures Trading Commission held the first of three hearings to explore ways to keep financial firms from amassing such large positions in energy markets that they have outsized power to affect prices.
"I believe that at the core of our mission is to make sure that the markets are fair and orderly," CFTC Chairman Gary Gensler said in an interview after the hearing. "It's really central to every American -- from how much you spend for gas at the pump to your heating costs in the wintertime."
Concerns that speculators were influencing oil prices bubbled up last summer when the price of a barrel of oil spiked to an all-time high. At the time, the CFTC leadership was not interested in pursuing new regulations to limit speculation. And the agency issued a controversial report suggesting that the rising oil prices were the result of natural factors of supply and demand.
Gensler, who became chairman in May, has said he thinks speculators have helped to boost the price of oil. In the interview, he said he hopes that his agency could officially propose new rules in the fall to govern energy speculation. The price of oil has increased by about 50 percent this year.
One factor that may play into the debate is a report the CFTC is scheduled to release next month about the types of firms, such as banks and hedge funds, that hold big positions in energy investments. CFTC officials said the report, which will be updated periodically, is not expected to cast judgment on whether speculation is influencing oil prices. If, however, it shows that few players dominate the market, the information could be used by those who support curbs on oil speculation.
"It will be a new and better report using additional data sets. I think many will have a greater degree of confidence in it -- especially when compared to the report we issued last year," said CFTC Commissioner Bart Chilton, who supports more rigorous limits and declined to sign off on the CFTC's report last year.
Testifying at Tuesday's CFTC hearing were several key market participants, including the Petroleum Marketers Association of America, which represents companies that buy fuel. The association endorsed new limits.
"It is abundantly clear that large-scale, institutional investors speculating in the energy markets continue to act as the driving force behind energy prices," said Sean Cota, treasurer of the association.
Oil contracts are traded on exchanges, which have historically done much of the work of regulating the energy market. One large exchange, Chicago-based CME Group, argued that it should set the limits, not the government.
"CME Group's ability to establish position limits that will not have severe adverse consequences to its markets and to administer those limits fairly and rigorously is well established," CME chief executive Craig Donohue said.
But smaller, Atlanta-based ICE said the CFTC should set the limits. Gensler wants his agency to set them.
Any formal action by the CFTC would require a vote by the agency's commissioners.