Oil, gas market speculation may face restrictions in US

US 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 on Tuesday in a statement. The agency didn’t say when the hearings would start or who would be asked to testify.

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 per cent 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.

Sanders has introduced legislation that would force the CFTC to invoke emergency authority to stop oil speculation. The agency is seeking input on whether it should impose aggregate position limits, Gensler said.

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 September 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 chairman 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.

Gensler 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.