White House seeks tools to fight ‘excessive’ oil speculation

US president Barack Obama has launched an initiative aimed at curbing speculation in energy markets, arguing that it would help ease the pain of high petroleum product prices.

He urged Congress to give the US Commodities Futures Trading Commission (CFTC) expanded powers, including the authority to force exchanges to raise margin requirements if it believed that speculators were causing excessive price volatility. Market participants responded with harsh criticism of the proposals, calling them misguided and dismissing them as political theatre

The president, who is facing a tough re-election battle in which surging petroleum prices have become a major issue, called for Congress to release $52m in funding for the US Commodity Futures Trading Commission (CFTC) to upgrade its technology and add personnel, whom he described as “cops on the beat” policing commodities markets. He also asked law makers to stiffen penalties for illegal market manipulation.

“We can’t afford a situation where some speculators can reap millions, while millions of American families get the short end of the stick,” Obama said in a speech at the White House, flanked by top officials including CFTC chairman Gary Gensler.

In an accompanying statement, the White House said Gensler’s agency should have the authority to direct exchanges to raise margin requirements “if the CFTC determines that heightened margin requirements are needed to address price volatility in markets or prevent excessive speculation or manipulation”. Similarly to the other proposed steps, such a move would require Congressional approval.

That seems unlikely, given that Republicans fiercely opposed to Obama’s agenda control the House of Representatives. Still, market participants were swift to condemn Obama’s proposals, arguing that they would reduce liquidity in energy markets, raising the cost of fuel hedging for utilities and industrial end-users, as well as increasing trading costs for true speculators.

CME Group, which operates the leading energy derivatives exchange in the US, issued a statement warning against “mistakenly categorising speculation as a form of manipulation”. The Chicago-based exchange operator also criticised the proposal to let the CFTC set margin requirements – a power that currently rests with exchanges.

“The administration must recognise that exchanges, as the operators of regulated energy markets, are in the best position to monitor volatility and manage margin requirements,” CME Group said. It added that “taking away from exchanges the ability to manage margins would make the markets less efficient, less tied to fundamentals and would create the potential to push the hedgers out of the market, which would make oil more expensive for all consumers.”

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