MARCY GORDON, WASHINGTON (AP) Federal regulators will examine whether the government should impose limits on the number of futures contracts in oil and other energy commodities held by speculative traders, the head of the Commodity Futures Trading Commission said Tuesday.
The agency will hold a public hearing later this month to gather views from consumers, businesses and market participants on the idea of new limits for energy futures contracts, CFTC Chairman Gary Gensler said in a statement. It will be the first in a series of hearings in July and August on various topics to determine how the commodities agency “should use all of its existing authorities to accomplish its mission,” he said.
The move comes against a backdrop of concern in Congress and complaints by traders over speculation in the oil futures market.
By law, the CFTC sets limits on the amount of futures contracts in some agricultural products that can be held by each market participant to protect the market against manipulation. But for energy commodities crude oil, heating oil, natural gas, gasoline and other energy products it is the futures exchanges themselves that set the position limits if they desire to do so.
“This different regulatory approach to position limits for agriculture and other physically delivered commodities deserves thoughtful review,” Gensler’s statement said. “It is incumbent upon the CFTC to ensure a fair and transparent price discovery process for all commodities.”
Oil traders and brokers have griped that funds traded on exchanges, such as the United States Oil Fund, have pumped billions of dollars into energy commodities enough to artificially prop up energy prices.
For example, benchmark crude oil prices have roughly doubled since March even though government reports show U.S. supplies brimming with surplus oil. Investors have been buying oil barrels not because of traditional supply and demand, but on the expectation that the economy will eventually improve. Some are also buying crude oil as a hedge against inflation, betting that the dollar will get weaker and push the price of energy commodities even higher.
Merrill Lynch estimates that investors are currently plowing $125 billion into commodity indices like the S&P GSCI Commodity Index, up from $80 billion in February. However, much of the increase is due to a rebound in commodity prices, Merrill Lynch analysts said.
In Congress, the House approved measures last fall aimed at curbing excessive speculation and trading abuses in oil and other commodity markets, despite a threatened veto by President George W. Bush. The bipartisan legislation called for giving the CFTC broader authority and limiting the size of the position that traders can hold in certain markets. It stalled in the Senate, however.
The CFTC twice last year took the unusual step of disclosing investigations into the possible manipulation of prices of crude oil and cotton futures.
Gensler also said the agency will make improvements to its weekly report on the futures contracts positions held by commercial and noncommercial traders that will provide fuller disclosure of the market data.
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