Panel Seeks To Curb Energy Speculation The head of the Commodity Futures Trading Commission said Tuesday his agency was considering imposing limits on the speculative trading of energy futures contracts. The move is an attempt to prevent the kind of wild swings that led oil prices to spike to $147 per barrel last year.
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Panel Seeks To Curb Energy Speculation

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Panel Seeks To Curb Energy Speculation

Panel Seeks To Curb Energy Speculation

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MADELEINE BRAND, host:

This is ALL THINGS CONSIDERED from NPR News. I'm Madeleine Brand in California. I'm filling in for Michele Norris for a few weeks while she's on book leave.

ROBERT SIEGEL, host:

And I'm Robert Siegel in Washington.

And it was about a year ago that oil prices hit a record $147 a barrel. Gasoline prices soared to more than $4 a gallon with devastating consequences for businesses and consumers. Then in a space of a few months, the price of oil came crashing down. And now, some federal regulators are blaming the spike on financial market speculators.

NPR's Jim Zarroli reports.

JIM ZARROLI: Economists and oil industry analysts are still trying to understand the wild ride that oil prices went on over the past two years, and many Democrats pin the blame on speculators. Congressman Bart Stupak of Michigan said the price swings can be tracked to the amount of money put into the markets by large investment funds that specialize in commodities. Stupak came to today's hearing armed with charts.

Representative BART STUPAK (Democrat, Michigan): From January 2008 through the end of June 2008, index speculators poured $55 billion into major commodity indexes, pushing the price of crude oil from $99 per barrel to 140.

ZARROLI: Stupak said by the end of the year, prices had plummeted only to rebound somewhat this year.

Rep. STUPAK: You can see prices rise from $35 a barrel to $70 a barrel as index investors came back into the market and put $35 billion into major commodity indexes.

ZARROLI: Under the Bush administration, the Commodities Futures Trading Commission had pinned the blame for the volatility on changes in global supply and demand. While speculators had played a part in the price swings, it said, their role was limited. Under the Obama administration, the commission says it wants to re-examine the evidence and perhaps change the way markets are regulated.

Right now, energy trading is largely overseen by the markets themselves. If a trader's position gets dangerously large, it trips what's called an accountability level, which means the markets step in to monitor them more closely and, in theory, they can take steps to restrict the trader's activities. One member of the commission, Bart Chilton, said the system doesn't work too well.

Mr. BART CHILTON (Commissioner, Commodity Futures Trading Commission): But these accountability levels that were - my colleagues were discussing, you know, they're not very effectual. They're sort of like suggested speed limits on a dark desert highway. They're not really adhered to.

ZARROLI: So the chairman of the commission, Gary Gensler, said today that he favors imposing tougher restrictions on the size of traders' holdings as a way of making the oil markets less volatile. But such a move could backfire, says John Kingston, oil director at Platts news service. He says if U.S. regulators try to restrict traders' activities, they can simply take their business overseas.

Mr. JOHN KINGSTON (Global Director of Oil, Platts): The fear here is that this is a very global market and then if you impose position limits too tight on the energy market, the traders will just take their ball and go elsewhere. They can basically trade from a country like Switzerland, where they are no position limits. They can trade over the counter unregulated.

ZARROLI: But the head of the other major player in the futures market, the Chicago Mercantile Exchange, was more resigned to the possibility of new regulations. He said his exchange would consider limiting traders' positions on its own, essentially sidestepping the government.

After the dramatic swings in oil prices that have plagued the economy in recent years, the exchanges are having to shift with the political winds.

Jim Zarroli, NPR News, New York.

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