Senators Question Weak Oil Speculation Rule

The Commodity Futures Trading Commission (CFTC) is poised to vote on position limits for oil trading, but some senators are concerned that the rule will be too weak to diminish oil speculation. Sens. Bernie Sanders (I-VT) and Maria Cantwell (D-WA) both wrote letters to CFTC Commissioner Gary Gensler, asking him to take stronger steps to curb financial speculators like Goldman Sachs and Morgan Stanley. Sanders called the expected rule “simply unacceptable“:

Unfortunately, if recent reports in the media are correct, the final rule on position limits, as currently drafted, will do little or nothing to lower prices and it will not eliminate, prevent or diminish excessive speculation as required by the Dodd-Frank Act. At a time when the American people are experiencing extremely high oil and gas prices, this would be simply unacceptable.

Financial institutions have grossly distorted oil and other commodity markets that used to be dominated by actual buyers and sellers of the underlying products. The Dodd-Frank Act mandated that the CFTC establish stronger limits on financial speculation in commodity markets by Jan. 17, 2011. Nine months behind schedule, the CFTC is planning to establish position limits that would allow a single speculator to control 25 percent of the physically deliverable supply of oil, and to control 125 percent of the cash-settled supply.

Sanders also called on the CFTC to ban “speculative commodity index fund trading,” citing the new report by Better Markets that identifies commodity index funds as the “primary drivers of excessive speculation.”

Sen. Maria Cantwell’s (D-WA) letter to the CFTC goes into more detail about the ineffectiveness of the proposed rule. “I urge the Commission to drop the ‘conditional spot month position limit’ policy from the final ‘Position Limits for Derivatives’ rule and treat the physically-settled and economically equivalent cast-settled ‘look alike’ contracts equally,” she wrote.

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