U.S. Moves to Shed Light on "Dark Markets"

CBS News Investigates: Government May Set Limits on Oil Speculators and Improve Transparency

(CBS)  It was a year ago this week that crude oil prices rocketed to a record $147 a barrel, sparking widespread outrage that speculators - like banks, hedge funds and investment giants - were behind the rise.

Ever since, the price of crude has been on a wild ride plunging as low as $34 a barrel in December before bouncing back to about $60 today.

This has fueled new concerns that - in the midst of economic turmoil - oil speculators are at it again, pumping an estimated $200 billion into the oil futures market in just the last year, reports CBS News chief investigative correspondent Armen Keteyian.

"I still think we have a lot of investment dollars flowing into dark markets," said Sen. Marcia Cantwell, D-Wash. "That is, oil being traded, energy futures being traded, on markets that aren't regulated."

In response, the Commodities Futures Trading Commission, which regulates oil and other commodities in the U.S., is dropping its historic hands-off approach. It is now considering tougher regulations that would make it harder for speculators to amass huge positions and make money timing the market.

"It's not our job to set prices in government but it is our job to make sure there's no fraud abuse or manipulation," said CFTC Commissioner Bart Chilton.

Under new leadership the CFTC is now considering for the first time setting limits on speculators the amount of oil they can hold and how long they can hold it.

It would also improve transparency, strengthening reporting rules to shed more light on who is speculating and with how much, especially in so-called "dark markets" long outside U.S. regulation.

It's not exactly welcome news among oil traders.

"I think it's a witch hunt," said energy markets analyst Phil Flynn. "I don't think there's any credible evidence that speculators are the sole cause of oil prices going up."

The CTFC will hold public hearings this month and next. As one insider told Keteyian: "Something is going to happen. We can't go through another summer like last summer."

[stopoilspec]

Three objectives can be realized from rationing gasoline and controlling the price of oil. First, our oil reserves will be preserved toward future needs thus reducing the use of foreign oil. Second, private and public transportation needs will be served with reasonable use of gasoline or promoted innovative alternative fuel or energy. Third and most importantly, vehicles will be required to be engineered to be more fuel-efficient.
For example (the numbers are negotiable), place an allotment on private vehicles allowing enough gasoline to travel say 1000 miles per month at the rate of 20 MPG the first year and then raise the MPG to say 22 the second year. Ratchet it up 2 MPG each year until we meet a standard for a reasonable economic reduction of the foreign oil being used.. If more gasoline is needed let those who use more than their ration pay a dollar more per gallon as an excise tax. This would promote auto engineering toward fuel efficiency and far less carbon in the atmosphere. A similar plan for trucks, buses and other fuel users can be put into law and regulation. For example, require all new trucks, buses and other heavy fuel users to be retrofitted for use of CNG, (compressed natural gas).

We need a solution to our economic problem. Gasoline was rationed during WW II. The people want leadership and discipline to change the economy. This may seem to be a negative approach, but necessary to overcome the love affair people have with the convenience of the automobile. When the market price of gasoline goes down the US auto companies promote big cars, suv's and trucks instead of fuel-efficient vehicles.

Let's improve transparency on White House visitors while we're at it.

[rafterman1]

Set "limits" on oil speculators? How about getting rid of them entirely. The same with lobbyists. Setting "limits" on these vermin is like saying we are only going to cut out SOME of the cancer. The rest left over is still cancer.

[flsunjnky]

It's about time we struck back! It was obvious that speculators were the ones that drove gas prices to ridiculous levels last year. I'm glad something is going to be done. For sure NOTHING would have been done under Republican leadership (if ya can call it that). Big business, oil, who cares about the average American?

[eclecticman1]

AGAIN THE OBAMA ADMINISTRATION IS DOING SOMETHING THAT SHOULD HAVE DONE BEFORE.

[didserve]

careful congress you will find some of your members at the bottom of this!

[fleabag75]

I've been around for a long time now and it makes me cry when I read how ignorant some people are. School levies fail left and right and then I read some of these comments and ask, "Why God?,, Why do you allow so many ignorant people to suffer without an education?"

[ahrats]

Its simple take oil off the comodity market, phase it out of course. It a natural resource not a comodity. Oil has so many uses and effects so many products that a little change in it value can cause problems. The only other recourse is shoot all oil speculators.

[tautomer]

Since NYMEX has a position limit of 20,000 net contracts (20MM bbl) and ICE has established position limits ti seems silly for the CFTC to establish further limits.
If they do, and the limits are onerous, trading will simply move to venues outside the jurisdiction fo the CFTC such as the Singapore Exchancge or the Dubai Exchange.
Once that happens the CFTC will have no power whatsoever to over the market.

At present the CFTC can adjust margin requirements if it believes the market is being manipulated. Once that power is gone the CFTC may as well close shop.

Markets are competitive just like anything else. It the CFTC renders American trading markets unattractive it will cost our businesses dearly.

[kcits]

Its amazing, since the look into the way the price of oil is manipulated, and the price of gas drops 35 cents in a week. Like how each year , on the day summer comes, the price skyrockets. Naaaaaaaaaaaaaaaaa there isnt anything going on that isnt on the up and up.