CFTC Chairman Announces Plans to Limit Speculation on Oil and Energy Markets

CFTC Chairman Gary Gensler. (image: Tim Sloan/AFP-Getty Images via nyt.com)

The federal government is now one step closer to placing the clamps on oil speculation.

Yesterday, Commodities Futures Trading Commission chairman Gary Gensler said that his agency is considering ways to limit the amount of energy futures contracts that oil speculators can hold, the New York Times reported.  The CFTC will hold hearings over the next two months to discuss this issue. Gensler’s announcement increases the likelihood of stricter commodities trading regulations being instituted.

The Obama administration has previously indicated support for the implementation of new rules regarding commodities trading. But the announcement made by Gensler, nominated to the chairman’s post by Obama, is the first sign of what the administration actually has in mind.  Many have blamed speculators for their role in bringing about the extreme volatility currently ruling the oil market. Last summer, the price of crude topped $145 per barrel; only a few months later, it bottomed out at $33 per barrel. This summer, the price of oil has quickly rebounded and has eclipsed the $72 mark.

Due to the wild swings in the price of oil, political pressure has mounted on speculators. Vermont Senator Bernie Sanders has been one of their most vocal critics and has made repeated calls for the CFTC to impose limits on the amount of commodities trading investment firms can engage in. On Tuesday, Sanders applauded Gensler’s announcement in a statement on his website, writing, “I’m glad that we are beginning to make some progress in addressing the artificially high price of gas and oil - and the role that Wall Street speculation is playing in driving up those prices.”

Many business leaders have also spoken about the volatility linked to speculators. The airline industry, which is heavily dependent on fuel, has struggled due to volatile energy costs. Airline executives are so worried about escalating oil prices that an industry trade group recently wrote to President Barack Obama to voice their concerns.

But not everyone is a critic of speculators.

Many industry experts do not blame speculators entirely for the market’s volatility, claiming that other factors, like production cuts from OPEC and long-term growth forecasts from developing nations, have also played a contributing role in the rapidly changing price of oil.
And others say that any curbs on speculators will harm the economy. As a commentator on the Houston Chronicle’s website wrote: “Removing speculators withdraws liquidity from the markets, which makes it more difficult and more expensive for companies to hedge. Those higher costs get passed on to consumers.”  The comment echoes a fear articulated by commodities trader Ray Carbone in a CNBC interview he gave last week.

Whatever the result, the discussion over the next few weeks will be worth following. It’s especially important for home heating oil users. One way or another, any changes to the rules will eventually make their mark on heating oil bills.