In the latest development in the ongoing saga of regulating speculation on oil and other commodities, the Commodity Futures Trading Commission (CFTC), has moved ahead with position limits aimed at calming commodity prices that were first proposed in December. The Wall Street Journal reported on Friday that the CFTC voted 4 to 1 to advance the proposed limits to the 60-day comment period required as the second-to-last step before implementation of new trading rules. Three weeks after they were officially announced last month, the CFTC appeared to backpedal on the proposed rules when commissioner Bart Chilton voiced support for a non-binding “points” monitoring system that would identify the biggest speculators but not set enforceable limits.
But Friday’s news signaled dedication within the CFTC to get the position limits on the books. Chairman Gary Gensler stated his backing of the limits after the announcement of Thursday’s vote, saying, “Position limits help to protect the markets both in times of clear skies and when there is a storm on the horizon.” Other commissioners, however, have expressed serious reservations about the proposed limits, and implied that their “yes” votes were intended to open the comment period and use the time to modify the rules and make them more effective. Commissioners seem to agree that the agency needs to collect more data on commodity derivative speculation before finalizing the rules, and will use the points-based position monitoring system to gather that data during the comment period.
The CFTC’s work toward position limits aimed at curbing speculative influence over commodity prices kicked into high gear in July, when the Dodd-Frank financial reform law gave the commission a broad mandate to impose tighter regulations on commodities derivatives trading. Since then, the agency has struggled to meet its considerable new responsibilities without an increase in its operating budget.
Since the Commodity Futures Modernization Act of 2000 opened up investment in commodities to a much wider variety of firms and individuals, speculative interests (investors who buy and sell commodity-based financial products for profit, with no interest in the physical commodities) have crowded into the commodities market in record numbers. The staggering increase in crude oil and heating oil prices over the last decade has prompted many companies and market commentators to identify ballooning speculation on commodities (especially energy commodities—crude oil is the most frequently traded commodity in the world) as a major cause of those price increases. More strict limits on how many commodity-based financial products huge speculators like hedge funds buy and sell, reformers argue, would help tamp down price volatility in oil and other commodity markets and blunt price spikes not related to supply and demand factors. Numerous heating oil industry groups have been outspoken supporters of position limits, saying they would go a long way toward streamlining dealers’ hedging activities (commodity investment strategies used to manage operating costs) and lowering heating oil prices for consumers
http://www.heatingoil.com/blog/cftc-moves-oil-speculation-limits-objections-wall-street0114/Finally some good news! Now the hedge fund SPECULATORS have something to worry about if they intend to run the price of oil back up to 2008 levels!
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