June 17, 2008
U.S. Regulators Act to Curb Oil Price Speculation
WASHINGTON _ The chief federal regulator of U.S. oil contract trades on Tuesday announced steps to restrain price manipulation and excessive speculation that many experts believe are driving up gasoline prices.
Critics complained that Tuesday's action, while welcome, should have come months ago.
"Frankly they've waited far too long," said Mark Cooper, director of research for the Consumer Federation of America, a consumer advocacy group.
Testifying before the Senate Agriculture Committee Tuesday, Cooper said that the rise in oil prices _ about 39 percent this year alone _ means that speculators are costing American consumers an estimated $1,500 per family in additional spending annually on gasoline.
The Commodities Futures Trading Commission _ an obscure regulatory agency now in the global spotlight _ announced the change in oil-trading regulations on Tuesday. The steps, while limited, would require buyers of U.S. oil contracts on the London-based Intercontinental Exchange (ICE) to abide by U.S. regulations for the first time. The ICE handles about 30 percent of all such contracts.
Critics of the CFTC insist that the absence of reporting requirements until now has allowed traders in London to purchase more oil contracts than they could have in the United States and influence the prices for oil traded in New York and London. Currently, large positions can be taken with few public details, and critics suspect collusion.
One such critic, Michael Greenberger, the CFTC's former director of trading under President Clinton, said that Tuesday's announcement was a good first step, but still leaves the weaker British enforcement regime in charge of overseeing trades there rather than the full U.S. regulatory regime.
"They aren't applying the full weight of U.S. regulation to this institution (ICE)," which is owned by a group based in Atlanta, said Greenberger. He oversaw trading regulation at the CFTC from 1997 to 1999 and now teaches law at the University of Maryland.
Acting CFTC Chairman Walter Lukken defended his agency before the Senate Agriculture Committee. He cited the CFTC's recent, rare acknowledgment that it's been investigating oil price manipulation since December. Lukken also said his agency is mounting an exhaustive request for data from a wide array of players in U.S. and foreign trading of oil contracts.
After review of that data, he said, recommendations will be made to Congress by Sept. 15 on how to achieve greater transparency in energy markets.
The CFTC chief stuck to a May statement that there aren't signs of excessive oil speculation.
"We have not seen evidence from our data. It's difficult to prove a negative," he testified. "Currently now we have not found a smoking gun. Nevertheless we are definitely taking steps to ensure that the market is working."
That angered some senators.
"It seems to me you have already taken a position on the issue," said Sen. Byron Dorgan, D-N.D. He complained that the CFTC is operating from the assumption that there's no wrongdoing.
Given the lack of information about the positions of some major oil traders, and differing levels of disclosure abroad, Dorgan asked, "How can ... you say anything with a high degree of confidence?"
Much of the Senate hearing's focus centered on the large flows of new investment into oil and other commodities. Large institutional investors such as pension funds and charitable endowments invest huge sums of money across an index of roughly two dozen commodities. They bet only one way, that prices will go up.
Because they swing more investment weight now than traders who take physical deliver of oil _ by a margin of at least two to one _ some economists believe these index investors amount to speculators who are distorting commodities trading and pushing up the price of oil.
The head of the Air Transport Association, James May, warned lawmakers that U.S. airlines are spending about as much for jet fuel this year _ $61 billion_as they did in the first four years of this decade combined. The CFTC needs to step in and quash speculation, he warned, or the United States will be without a viable airline industry.
"We really need to make sure that there is transparency and fairness in the market," he said. "My bottom line is this needs to happen sooner rather than later."
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