‘Commodities of finite supply’ might get position limits

Are gold and silver ‘commodities of finite supply’? From the Comex, you wouldn’t think so.

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Oil, Gas Market Speculation May Face Restrictions

By Tina Seely, Bloomberg

WASHINGTON — U.S. 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 this month and next to explore the need for government-imposed restrictions on speculative trading in oil, gas, and other energy markets, Chairman Gary Gensler said today in a statement.

The hearings come amid increased scrutiny of the impact of speculators on oil prices. Sen. Bernie Sanders, a Vermont independent, and Rep. Bart Stupak, a Michigan Democrat, blame speculators for last year’s surge in crude-oil prices to a record $147.27 a barrel and called for CFTC action to avert a repeat. Oil has climbed 41 percent this year in New York trading, while demand has dropped and inventories climbed.

“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.”

Among the questions the agency will ask is whether it needs additional authority from Congress to apply the limits across all markets, Gensler said. The agency didn’t specify dates when the hearings would take place or who would be asked to speak.

In an interview last week, the chairman said he had called on the agency’s staff to review all available options for ensuring fair markets.

Billionaire investor George Soros testified to 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.

Regulation and oversight of deliverable futures contracts have always been necessary, said Michael Cosgrove, head of North American energy operations for broker GFI Group Inc. in New York.

“Oversight of contracts that do not affect supply and demand, such as Nymex cash-settled futures and ICE cash-settled swaps, is a misguided waste of taxpayer dollars,” Cosgrove said today in an e-mailed statement. “These contracts affect supply and demand no more than the betting at a race track affects the speed of the horses.”

Crude oil futures prices for August delivery fell $1.23, or 1.9 percent, to $62.82 a barrel at 10:34 a.m. on the New York Mercantile Exchange.

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