Speculation Seems To Fuel Oil Prices
Tuesday, July 07, 2009JEFF YASTINE: A sharp drop in oil prices today -- they are now at $62 a barrel. In the past week alone, they've tumbled 13 percent on growing concerns an economic recovery is far away. The volatile ups and downs in the New York oil markets are getting attention in Washington. Regulators are trying to figure out whether wild swings in prices are a result of bets made by speculators. As Darren Gersh reports, the Commodity Futures Trading Commission says it's time for some answers.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you buy crude by the tanker or fuel by the truckload, regulators say you have a physical demand for oil, a real need to protect your business by trading in futures markets. The Commodity Futures Trading Commission is considering stricter trading limits on everyone who has a financial need for oil, meaning investors and speculators. CFTC Commissioner Bart Chilton says the idea is to limit the ability of any one trader to push around energy prices.
BART CHILTON, CFTC COMMISSIONER (BY TELEPHONE): This is an effort to ensure that people are paying a fair price for commodities. It's not our job to pick a high price or a low price, but to make sure that it's a fair price that is traded and there is no abuse or manipulation in these markets.
GERSH: The Futures Industry Association supports sensible limits on trading positions. The question is how they are defined. Association President John Damgard says it's important to have investors and yes, speculators trading with airlines and truckers who are worried about rising fuel costs.
JOHN DAMGARD, PRESIDENT, FUTURES INDUSTRY ASSOCIATION: I think it is important for people to not demonize speculation. Speculators are an important component of our market and if they went away, an awful lot of people who are trying to manage risk wouldn't be able to do it.
GERSH: But critics say last year's wild swings in oil -- up to $145 a barrel and then back down -- show the disconnect the financial need for oil and the real need for oil. The Oildrum.com's Nate Higgins says those demands have to come into better alignment.
NATE HAGENS, EDITOR, THE OIL DRUM: The CFTC and the administration is trying to get their arms around this long term disconnect, that there aren't enough natural resources for everyone to have a $30 to $ billion leveraged hedge fund geared up to invest in them.
GERSH: Members of Congress like Bart Stupak have been pushing hard for more regulatory oversight. Stupak says he'll be watching the CFTC closely to make sure it cracks down on speculators, which he says have forced oil prices from $33 a barrel in December to almost $63 today.
REP. BART STUPAK (D) MICHIGAN: What incident, what occurrence would allow a doubling? Nothing other than excessive profit-taking. So all we are saying is give the American consumer, give this economy, give the world economy which is in recession a break.
GERSH: It may soon be far easier to figure out whether speculators are, in fact, having an undue influence on energy prices. Regulators promise to release more information on the trading activities of hedge funds and other investors in futures markets. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
