CFTC Meets to Discuss Limits on Oil Speculation
An article posted on BusinessWeek.com said that on Thursday, the Commodities Futures Trading Commission met to consider setting limits on speculative activity in oil and other energy markets. The CFTC would propose limits to cap how many contracts oil speculators—investors who earn money by trading oil contracts with no interest in the physical commodity—could buy.
Traders in violation of those limits will probably be required to sell especially large contracts. The CFTC can also issue fines and revoke trading privileges on the New York Mercantile Exchange, where oil futures are traded.
Even though imposing limits on speculation in oil and energy markets was a long time coming, this meeting is only a first step, and actual regulations are still weeks or even months away. The commission will ask for public comments on any preliminary proposal before a final vote.
CFTC Commissioner Bart Chilton said that the commission should initially keep caps high enough so that oil and energy speculators would not feel the need to change their trading practices right away. The commission could eventually set stricter limits on trading activity, he said.
“Even if I’m not sure that these new speculators are contorting markets, if there’s the hypothetical possibility, we are obligated to do something about it,” said Chilton. He called doing nothing “irresponsible.”
John Hyland, a portfolio manager for the U.S. Oil Fund, which controls billions of dollars in energy contracts, said that he is unsure how trading limits would affect his business. He went on to say if the government set limits on the number of contracts that funds can buy, fund managers would probably continue to trade as much as before.
Managers can circumvent limits by moving their business overseas and to unregulated over-the-counter markets. Or they can simply split their funds into smaller ones that meet federal trade limits, said Hyland.
After reaching record highs in 2008 and record lows in 2009, oil prices are again increasing, reaching $83 per barrel this week, even though petroleum demand in the U.S. is decreasing. Speculators are again being held accountable for jacking up crude oil prices to levels unjustified by global demand.