US Congress takes aim at 'speculative' crude oil trades
9 November 2007
Carl Levin, a senior US Senator, yesterday moved to address increasing concern among some lawmakers over high energy prices by announcing he would chair a hearing to "examine the role of speculation in recent record crude oil prices".
The move is a sign that US congressional scrutiny of how energy markets are regulated is increasing.
It came as Abdullah al-Badri, secretary-general of the Organisation of the Petroleum Exporting Countries, yesterday called for tighter regulation of oil markets, saying "speculation" was leading to "exaggerated prices".
"Right now it is funds and speculators who invest in oil -- and financial markets interfere with the oil market," Mr al-Badri said in Vienna.
The idea that speculators -- often used as shorthand for hedge funds -- may be trading in a way that results in unusual price movements has gained traction among some US lawmakers.
This is rebutted by derivatives and hedge fund industry groups, who say speculation is part of a normally functioning market.
Sharon Brown-Hruska, an economist at Nera Economic Consulting, said: "It's certainly not been demonstrated that there's any kind of speculative impact on prices. It has been demonstrated that demand has not abated and supply has been flat in terms of an oligopoly supply source. It's interesting that Opec would be blaming speculators for high prices without really addressing the supply side."
As chairman of the Senate permanent sub-committee on investigations, Mr Levin produced a report this year on "excessive speculation" by collapsed hedge fund Amaranth in natural gas markets on the New York Mercantile Exchange and the Intercontinental Exchange, an "over-the-counter" platform. Mr Levin, energy consumer groups and some utilities say this hit consumer prices.
Last month, BP reached a Dollars 303m settlement with the US futures regulator, the Commodity Futures Trading Commission, and the department of justice, involving allegations of attempted manipulation in the market for propane, widely used by consumers.
Enforcement by regulators is generally tougher in US energy markets than in the UK, where the Brent crude market is based, industry experts say.
Since the collapse of energy trader Enron, the CFTC has charged 63 companies and individuals for violations in the sector, and obtained more than Dollars 300m in civil settlements.
The Financial Services Authority, which regulates UK energy markets, does not provide energy-specific enforcement statistics.
In the US, lawmakers angered by the lack of a legal basis for the CFTC to fully oversee trading in OTC energy markets are pushing legislation to widen the agency's powers.
Last week, Congressman Peter Welch of Vermont introduced a bill to require "government oversight of the trading of unregulated energy commodities to prevent price manipulation and excessive speculation".
The legislation provides a "companion bill" to one already introduced by Mr Levin in the Senate -- boosting the chance of a law being passed.
Copyright 2007 The Financial Times Limited, Financial Times (London, England)
