To ease price swings, U.S. may limit energy trading

WASHINGTON — Critics say federal regulators have long let speculation in energy markets inflict financial pain: triggering wild price swings, hurting gasoline wholesalers, damaging airlines and squeezing consumers.

Now, in a major shift, regulators are considering imposing quantity limits on speculative trading of energy futures contracts. The futures contracts are supposed to lessen price volatility. But speculators use them to bet on market prices, and critics say this magnifies price swings.

The Commodity Futures Trading Commission will begin hearings Tuesday to gather views from consumers, businesses and traders.

"I believe we're going to do something," Bart Chilton, one of the four CFTC commissioners, said in an interview. "I would be extremely surprised if we don't take some action to set hard limits" on energy futures contracts held by speculators, as well as those in metals.

CFTC Chairman Gary Gensler sounds less certain about the outcome. But Gensler says, "My firm belief is that we must aggressively use all existing authorities to ensure market integrity and efficiency."

Agency spokesman Scott Schneider said that if the CFTC adopted new restrictions, it likely would happen in late summer or early fall. Specifically, the agency is weighing whether to restrict the amount of trading in energy futures by those who are solely financial investors.

The free-market sentiment that held sway in Washington for years helps explain why regulators kept their hands off the volatile oil futures markets. The Bush administration generally opposed tighter regulation in the financial industry.

Though the CFTC is supposed to be independent and insulated from politics, "there were people appointed to the CFTC who were part and parcel of the philosophy of the Bush administration," said Sen. Byron Dorgan, D-N.D.

Another reason why the agency's hands-off approach prevailed for so long, critics say, was the deep-pocketed financial industry and its lobbying muscle. The industry opposes new limits on speculative trading, arguing they would crimp the cash flowing through the market and drive business overseas.

The industry has spent scores of millions of dollars in recent years lobbying Congress and the federal government. For example, Wall Street's biggest trade group, the Securities Industry and Financial Markets Association, spent about $1.4 million lobbying on all issues in the third quarter of last year — when public anger over spiking oil prices escalated and Congress seemed poised to act.