Oil, Gas Market Speculation May Face Restrictions

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 hold oil 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.

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

MUST clamp down.

but we know who was in charge then

held steady for the last two in Texas.

How about forbidding companies to run up oil prices using money they took from the government to hide their insolvency?

Here's lookin' at you, J.P. Morgan.