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Limiting Oil Speculators Gains Ground

Feds appear ready to clamp down on futures traders

By Mark Huffman
ConsumerAffairs.com

June 19, 2008
With Congress leading the way, the U.S. government appears ready to place limits on oil speculators who, some contend, have driven the price of oil far beyond what normal supply and demand would support.

The Commodity Futures Trading Commission said that as a first step, it will require London-based market traders to observe position limits employed by U.S. markets. The U.S. will also gain access to daily trading data from foreign oil markets.

But Congress, which Tuesday held hearings on oil market speculation, appears ready to go farther, limiting market access to entities that actually plan to take delivery of the oil. That would include energy wholesalers, refiners, and even direct users, such as Southwest Airlines, which has cushioned the impact of the oil spike by some savvy purchases in the futures market.

Legislation to limit speculation has quickly gained momentum in the House and Senate, much to the concern of some big time Wall Street players.

In fact, the Washington Post reports that lobbyists for Goldman Sachs and Morgan Stanley were among the financial interests beseeching lawmakers last week to forget about limiting speculation.

Quoting sources, the Post describes "sometimes testy" closed-door meetings in which hedge fund executives tried to make the case that their highly lucrative speculating in the oil futures market was actually helping the market operated more efficiently.

According to the report, lawmakers weren't buying it. One key aid reportedly told the executives there is nothing they can do to prevent Congress from passing legislation to curtail oil speculation.

Sen. Maria Cantwell (D-WA) says Congress has known since 2001 that there have been problems in the markets, but lawmakers have encountered strong Wall Street opposition whenever anyone has broached reform.

Unprecedented increases

Oil prices are up at least 40 percent since January, with prices setting almost-daily records. The price of crude has hit $140 a barrel and a growing number of lawmakers have begun to view speculation as the main reason.

OPEC oil ministers also appear to agree. The oil ministers for both Iran and Saudia Arabia, the world's two largest oil producers, say there is no oil shortage and prices are not being influenced by supply and demand.

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