Legislation to Limit Excessive Speculation in Energy
Measure would level playing field in energy futures markets
June 14, 2008
WASHINGTON, D.C. In the wake of growing concerns regarding
the impact of speculation on oil price, U.S. Senators Ted Stevens
(R-Alaska) and Dianne Feinstein (D-Calif.) introduced legislation
requiring the Commodity Futures Trading Commission (CFTC) to
impose the same rules on institutional investors that other investors
must follow. This legislation would essentially level the playing
field in energy futures markets.
At present, CFTC exempts institutional investors from those limits
when they execute their trades through swaps dealers. By using
third parties, institutional investors can currently ignore restrictions
on how much of their investment is in oil.
"Unsustainable fuel prices are crippling the economy and
runaway speculation has a hand in bringing the cost of a barrel
of oil towards $150. This bill will provide needed regulation
of oil futures trading which Senator Feinstein and I feel has
artificially driven up the prices," said Senator Stevens.
"This bipartisan approach, teamed with domestic energy innovation,
is urgently needed to face America's energy crisis."
"It is becoming clear that rampant speculation in energy
markets by institutional investors may be driving up the price
of oil and gas. And yet, CFTC exempts these investors from the
position limits that are imposed on all other speculators. This
gives institutional investors an unfair advantage in the marketplace
and is contributing to the skyrocketing energy prices,"
Senator Feinstein said. "It's time to level the playing
field, and require position limits for all speculators. There's
no doubt that our energy markets are in crisis and this
is one important step we need to take to get us back on track."
Last month, CFTC announced that it will review the trading practices
for investors to ensure that this type of trading activity is
not adversely impacting energy prices. The agency also announced
plans to determine whether different practices should be employed.
The legislation introduced by Senators Feinstein and Stevens
would outline specific speculation rules which large institutional
investors must follow, ensuring that they are not able to drive
up energy prices.
Recent testimony before numerous Congressional Committees indicates
that between 2000 and 2002, major institutional investors, like
mutual funds, began to view commodity futures markets as a new
"asset class," suitable to be used in large financial
portfolios. From 2003 to 2008, investments in commodity index
funds rose from $13 billion to $260 billion. As Daniel Yergin,
one of the nation's leading energy market experts put it: "Oil
has become the 'new gold' - a financial asset in which investors
seek refuge as inflation rises and the dollar weakens."
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