Speculation to be Regulated?

Oil, Gas Market Speculation May Face Restrictions (Update1) 

Share | Email | Print | A A A

By Tina Seeley

July 7 (Bloomberg) -- U.S. regulators say they may clamp down on oil and gas price speculators by limiting the holdings of energy futures traders, including index and exchange-traded funds.

The Commodity Futures Trading Commission will hold hearings to explore the need for government-imposed restrictions on speculative trading in oil, gas and other energy markets, Chairman Gary Gensler said today in a statement. The agency didn’t say when the hearings would start or who would be asked to speak.

Senator Bernie Sanders, a Vermont independent, and Representative Bart Stupak, a Michigan Democrat, have called for action to avoid a repeat of last year’s run-up in crude oil prices to a record $147.21 a barrel, which they blame on speculators. Oil has climbed 44 percent this year in New York Mercantile Exchange trading, even amid a drop in demand and high levels of fuel in storage.

“Our first hearing will focus on whether federal speculative limits should be set by the CFTC to all commodities of finite supply, in particular energy commodities, such as crude oil, heating oil, natural gas, gasoline and other energy products,” Gensler said in the statement. “This will include a careful review of the appropriateness of exemptions from these limits for various types of market participants.”

Billionaire investor George Soros told a Senate hearing in June 2008 that the oil price increase that year was caused partly by index funds that buy only oil contracts. Index funds and exchange-traded funds, which mimic an index, can holdoil contracts in excess of available supply.

Emergency Authority

Regulation and oversight of deliverable futures contracts has always been necessary, said Michael Cosgrove, head of North American energy operations for broker GFI Group Inc. in New York.

“Oversight of contracts that do not affect supply and demand, such as NYMEX cash-settled futures and ICE cash-settled swaps, is a misguided waste of taxpayer dollars,” Cosgrove said today in an e-mailed statement. “These contracts affect supply and demand no more than the betting at a race track affects the speed of the horses.”

Crude oil futures prices for August delivery rose 47 cents, or 0.7 percent, to $64.52 a barrel at 8:42 a.m. in electronic trading on the New York Mercantile Exchange.

Sanders has introduced legislation that would force the CFTC to invoke emergency authority to stop oil speculation. Stupak’s proposal, which was included as part of climate-change legislation approved by the House last month, would impose position limits on energy speculators across all markets.

The agency is seeking input on whether it should impose such aggregate position limits, Gensler said.

Asset Bubble

Gensler said in a letter to lawmakers earlier this year that speculators contributed to an asset bubble in commodities in 2008. His statement broke from former CFTC Acting Chairman Walter Lukken, who testified to Congress on Sept. 11 that there wasn’t “strong evidence” index traders were driving up prices.

Gensler wouldn’t say in an interview last week if he thought the same thing was happening this year.

“The CFTC currently sets and ensures adherence to position limits with respect to certain agriculture products,” Gensler said in the statement. “For energy commodities, futures exchanges set position limits and accountability levels to protect against manipulation and congestion. The exchanges are not required to set and enforce position limits to prevent the burdens of excessive speculation.”

The amount of money being managed by exchange-traded funds in commodity markets has “increased significantly over the past few years,” Michael Lewis, head of commodities research for Deutsche Bank AG, said in a note issued yesterday.

“Most startling is how assets under management today are higher than when commodity prices were at their all-time highs some 12 months ago,” Lewis wrote.

‘Bona Fide Hedging’

Gensler said the CFTC is reviewing exemptions from position limits for “bona fide hedging,” after seeking public comment on whether the exemption should continue to apply to traders who are in the market for financial reasons, rather than those that actually use the commodity.

The chairman, who took office in May, also said the agency was going to improve its weekly commitment of traders’ reports by separating swaps dealers from hedge funds. The agency will continue to collect and report data from swaps dealers and index investors, extending a “special call” from last year, Gensler said.

“Enhancing the quality of information in these weekly reports will better inform market participants and the public about the positions of the various types of traders,” he said.

To contact the reporter on this story: Tina Seeley in Washington attseeley@bloomberg.net.

Last Updated: July 7, 2009 09:00 EDT 

http://www.bloomberg.com/apps/news?pid=20601087&sid=a1.QbgWdF8aY

Comments

[Gold IRA]

This blog provides to us much information’s about the oil and gas market. I am really very thankful to you. I like this blogs matter.

Watch a free video on Gold IRA.
http://www.youtube.com/watch?v=3P5oEnKMysQ