WASHINGTON Federal regulators said Tuesday they will place stricter limits on foreign exchanges that trade U.S. oil as concerns continue to grow about the role of speculation in rising fuel prices.
The Commodity Futures Trading Commission said it will require the London-based ICE Futures Europe exchange to adopt position limits used in the U.S. for the trading of the West Texas Intermediary crude-oil contract, which is linked to a similar contract on the New York Mercantile Exchange.
Under the new agreement, foreign officials also will share daily trading data with U.S. authorities and report violations when they are uncovered. Previously the groups shared data on a weekly basis.
Atlanta-based Intercontinental Exchange Inc., parent company of ICE Futures Europe, plans to comply with the new rules and said the CFTC action would have almost no effect on its customers or business.
Some lawmakers are increasingly blaming speculation by index funds and other large investors for artificially boosting oil and other commodity prices. Those members of Congress said the CFTC's move was long overdue.
"Why didn't we do this nine to 10 months ago when things first appeared to be moving faster than usual?" asked Sen. Ben Nelson, D-Neb., at a hearing to assess the agency's performance. "The sense of urgency on the street seems to be different from the sense of the bureaucracy. We need to match that urgency."
Meanwhile, Rep. Jim Matheson, D-Utah, introduced a bill Tuesday designed to stop market manipulation that could be contributing to the rising costs. The "Close the London Loophole Act," which already has a Senate version, would give the CFTC clear legal authority and a legal obligation to obtain trading data from foreign exchanges operating in the U.S. through direct trading terminals.
"One factor contributing to the record high price at the pump is what's going on with Wall Street energy commodity traders," Matheson said in a prepared statement. "With this bill, excessive manipulation and unscrupulous speculation can potentially be detected and halted before more economic harm is done to consumers and businesses."
Matheson sits on the House Energy and Commerce Committee, which would take up the bill before it could go to the House floor.
Matheson and Blue Dog Energy Task Force Co-chair Rep. Charlie Melancon, D-La., who co-sponsored the bill, want the CFTC to be able to detect, prevent and punish price manipulators and speculators who trade U.S. crude oil on foreign commodity exchanges.
"At $135-a-barrel oil, it's clear that there's more going on than just the normal law of supply and demand," Matheson said. "Commodities traders who are routing their trades through a foreign exchange are 'gaming the system,' and all of us filling up at the pump are losing out."
Light, sweet crude for July delivery fell 60 cents to settle at $134.01 a barrel on the Nymex Tuesday, which is still up nearly 35 percent since the beginning of the year.
CFTC Acting Chairman Walter Lukken previously told Congress oil prices appeared to reflect market fundamentals.
But in the past month the agency has taken a flurry of actions to gather more data on unregulated trading, including over-the-counter swaps. The CFTC said it would report to Congress on what it learns from the new information by September.
"I hope they'll be able to give us a more complete picture of the trades coming in through London and over-the-counter swaps," Sen. Dick Durbin, D-Ill., said in a phone interview after the hearing he chaired. "If we see hedge funds and pension funds moving massive amounts of money through this marketplace, it will mean we have to do even more."
Analysts have said the commission's latest proposals would have little immediate effect on oil prices, which are responding to a falling dollar, increasing demand and other factors. But over the long term, stricter enforcement could chill speculative investors' enthusiasm for energy futures and help lower prices.
Considering the limited view the CFTC has of the futures market, Sen. Byron Dorgan, D-N.D., questioned whether regulators know enough to gauge the effect of speculation.
"If you don't have the foggiest idea what percentage of total contracts you are regulating, you wouldn't have a clue whether there is excessive speculation in the markets," Dorgan said.
Lukken has said his agency's powers were mainly designed to uncover deliberate manipulation, not the effects of larger trading trends. Still, he could not rule out market manipulation as a source of rising oil prices.
"But we are looking for it and policing it aggressively if we find it," Lukken said. He stressed the need for increased agency funding, noting the CFTC's staffing levels dropped 21 percent in the last seven years, while commodity trading has skyrocketed.
UAL Corp.'s United Airlines on Tuesday endorsed the Senate bill Durbin introduced last week that would give the CFTC additional power and resources. The Chicago-based carrier said its fuel bill this year will hit $9.5 billion based on current prices, more than $3.5 billion higher than last year.
James May, president of the Air Transport Association, the airline industry's main trade group, told lawmakers its members expect to lose $10 billion this year on par with their worst combined loss ever solely because of soaring fuel costs."The airlines won't be around much longer if the status quo wins the day," he said.