Speculators 'driving oil price volatility'

Speculators on international energy markets have become "the driving force" behind volatile oil prices, US regulators heard.

Speculators on international energy markets have become "the driving force" behind volatile oil prices and need to be restricted with new trading limits, a US regulatory agency hearing was told Tuesday. The Commodities and Futures Trading Commission (CFTC), which oversees commodities exchanges in the US, is considering new limits on "positions", or the number of oil futures contracts that traders can hold, in response to complaints that financial investors are unduly influencing the price of oil.

A number of influential figures, including OPEC and US congressmen, have blamed institutional investors such as hedge funds and investment banks for worsening the volatility of oil prices. They say these investors exaggerate the movements in oil prices by buying and selling tens of thousands of contracts each day, outweighing airlines, oil refineries and other firms that trade futures contracts to supply oil for their own businesses.

"It is abundantly clear that large-scale, institutional investors speculating in the energy markets continue to act as the driving force behind energy prices," said Sean Cota, the treasurer of the Petroleum Marketers Association, which represents the interests of petrol station owners across the US. Oil price volatility has "made it impossible to undertake necessary corporate planning and has been devastating to our industry", Ben Hurst, the general counsel for Delta Air Lines, told the hearing.

But CME Group, the owner of the New York Mercantile Exchange, argued yesterday against the new rules, saying its reputation for imposing internal fair position limits "is rigorously well established". Gary Gensler, the CFTC chairman, said the hearing would look at ways to limit "excessive speculation" and did not intend to eliminate speculation on the exchanges entirely. Yesterday's hearing was the first of three this summer that the CFTC will hold. The commission announced earlier this month that it would also expand its weekly report on exchange activity to describe positions held by professionally managed market investors, such as hedge funds, and give more information about swaps dealers and overseas futures contracts that could influence trading on US exchanges.

* with agencies [e-mail]