Congress aims at oil trading

Democratic Congressmen say they'll take another stab at closing loopholes that allow unbridled 'speculation.'

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By David Goldman, CNNMoney.com staff writer

What was the top economic story this week?
  • Airline surcharges
  • Midwest floods
  • Mortgage arrests
  • Offshore oil drilling

NEW YORK (CNNMoney.com) -- "Speculation," a dirty word across America as Wall Street traders take the blame for record oil and gasoline prices, drew more attention Friday from Congress as three Democratic House members introduced yet another bill attempting to limit activity.

To underline his case, Rep. Bart Stupak, D-Mich., said speculators now control 71% of oil on the market. That means only 29% control the physical oil being traded, down from 61% eight years ago.

Stupak blamed loosely regulated trading markets with numerous loopholes for the ease that traders have to buy and sell crude.

As a result, Stupak introduced legislation with the support of two other Democratic Congressmen to close loopholes that allow oil to be traded electronically in unregulated oil markets. The bill would also regulate other methods that Stupak claims oil traders use to avoid federal oversight.

"We can eliminate a major avenue that traders use to avoid oversight," said Stupak at a press conference Friday. "It's time for Congress to close the Enron loophole and lower our gas and diesel prices by 50%."

Many in Congress have suggested that closing a provision in the Commodity Futures Modernization Act of 2000 that critics call the "Enron loophole," after the energy trading company whose bankruptcy was the centerpiece of the corporate scandals early this decade. The provision allows oil futures to be traded in markets outside of the jurisdiction of the Commodities Futures Trading Commission.

Stupak, the chair of a House Energy and Commerce subcommittee, has pledged to investigate regulation of speculation further in a hearing on Monday.

Congress is currently awash in nine different bills - including Friday's proposal - that attempt to limit the role of speculators. Several have bipartisan support, but only one was co-sponsored by a Republican.

Proposals have included requiring foreign exchanges to provide more information about crude oil trades, limiting the number of contracts speculators are allowed to hold, increasing the amount of money speculators need to put up to buy an oil contract, and removing speculators from the market entirely and limiting trade to just producers and consumers.

Opposition against regulation mounts

Traders have lashed out against some of the lawmakers' proposals, such as banning speculation in some markets, saying that would only result in oil trading shifting to even less-regulated areas.

Stupak countered by saying the new proposed legislation is "the most comprehensive approach" that has yet been offered. He suggests closing all loopholes, including bilateral out-of-market trades, foreign trades on the InterContinental Exchange, swaps, and hedging exemptions. As a result, he believes excessive speculation will be stopped by complete oversight of the markets.

But some analysts believe that speculation plays a crucial role in the market by adjusting the price of oil according to supply and demand. Some argue that such regulation - no matter how pervasive - will hinder that process and actually result in higher prices.

"This is poor analysis and bad policy," said Kevin Norrish, a commodities analyst with Barclays Capital in London. "Any regulation in markets which results in forced trading is a very dangerous step indeed."

Though many Democratic and some Republican politicians have furiously blamed speculation for driving up the price of oil, many analysts argue that the market fundamentals of supply and demand are the cause of record prices.

"If it is a bubble, then where is the evidence in the actual physical market?" asked Norrish. "There is an endless list of reasons why this argument is a very, very poor one - it will only make things worse."

Stay tuned. To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More


Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.