CFTC to Move on New Commodity Rules

Posted by Jackson Stone on August 30, 2011 at 5:01 am

CFTC chair Gary Gensler has indicated a final decision on new "position limits" to reign in speculation in oil markets could be signed off in September. (image: russellmeansfreedom.com)

Heating oil dealers are praising a decision by federal regulators to move forward on new rules designed to tackle rampant speculation in oil markets.

Officials at the Commodity Futures Trading Commission (CFTC) have indicated that a final rule on the long-awaited speculative “position limits” is likely sometime in September, the New England Fuel Institute (NEFI) reports.

Commission chair Gary Gensler said the decision could be made as early as September 22, Bloomberg reported Monday.

Many commentators blame excessive speculation by Wall Street traders for spikes in world oil prices that saw the cost of crude, gasoline and heating oil hit 30-month highs earlier this year. Though oil prices have fallen in recent weeks, heating oil prices are tipped to spike again this winter.

The new rules were mandated in last year’s Dodd-Frank financial reform act in the aftermath of the 2008 financial crisis. They aim to improve transparency in financial markets, clamp down on fraud and market manipulation, and help prevent volatile price movements of essential commodities.

But implementation of the new rules – originally set down for January this year – has been delayed amid fierce lobbying by the financial sector while CFTC officials sought more information.

Futures oil markets have traditionally been used by oil companies, airlines and other petroleum end-users as insurance against future price changes that affect their businesses. NEFI president Michael Trunzo said position limits would help curtail excessive speculation by commodity traders who profit when oil contracts gain wildly in value.

News the commission was set to vote on the new rules was welcome news for heating oil dealers and their customers, Trunzo said.

This development should please consumers and businesses across the country. Position limits should renew certainty, stability and confidence in the commodity in a timely and comprehensive manner.

The NEFI and Petroleum Marketers Association of America are part of a coalition campaigning for the commission to strengthen its proposed rules to address rampant speculation.

The CFTC has received about 13,000 submissions, the overwhelming majority of which supported the implementation of position limits, Trunzo said. They included hundreds of letters of support from NEFI heating oil dealers warning the commission to strengthen the rules and implement them without further delays.

The coalition has just released a revised list of more than 75 studies and reports demonstrating the harmful effects of excessive speculation.

And just last week, independent Vermont Senator Bernie Sanders released secret oil trading data collected by federal officials that shed light on speculative activity by financial traders in the weeks before the 2008 financial collapse, when oil bottomed out from an all-time high of $140 a barrel to just $30. It named big investment banks, pension funds and hedge fund operators.