First real shot across the bow of the oil speculators. It will be interesting to see how the market ultimately reacts, and how the free market Wall Street parties rally against this approach(especially Paulson and the commodity market participants),
The Wall Street Journal
June 27, 2008
DOW JONES REPRINTS
This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit:
www.djreprints.com.
• See a sample reprint in PDF format.
• Order a reprint of this article now.
Bill Targets
Speculation
Over Energy
By SIOBHAN HUGHES
June 27, 2008
WASHINGTON -- The House of Representatives -- on a day when crude-oil prices hit a record high -- voted Thursday to order the nation's energy-market regulator to use its emergency powers to immediately curb excessive energy-market speculation.
The 402-19 vote was in favor of a bill that calls on the Commodity Futures Trading Commission to more aggressively police the energy markets it oversees. The overwhelming support indicates both parties want the CFTC to step up its review of whether speculation is contributing to rising prices and be prepared to take dramatic steps. Those steps could range from increasing the amount of money traders must put down to bet on the direction of energy prices, to temporarily shutting down the markets.
"Speculation is part of the problem," said Rep. Chris Van Hollen (D., Md.). Forcing the CFTC to use its emergency powers "opens up a whole set of new tools that they are not using."
It isn't clear the bill will become law anytime soon. The Senate won't take up the bill until next month at the earliest, and many people are betting senators won't pass it. Even if they do, there is the risk that both chambers would need a two-thirds majority to override a presidential veto. While the White House hasn't said whether it would veto the bill, the Bush administration has downplayed the role of speculation and maintained that oil prices are rising because of growing world-wide demand.
"The CFTC has the appropriate authority and oversight to review energy markets," said White House spokesman Tony Fratto. "The most important factor in rising oil prices is increasing global demand."
The vote came on a day when crude-oil futures hit an intraday record above $140 a barrel after OPEC's president said prices could rise above $150 a barrel.
Some lawmakers say prices have more than doubled over the past year in part because of a flood of money entering the commodity-futures markets.
Wall Street firms are concerned about the talk of further congressional action. They have been making a case that speculation is not the same thing as manipulation, and arguing that speculators are necessary for markets to function.
Trading by swaps dealers -- the big Wall Street banks involved in energy trading -- on behalf of financial investors and commodity companies, along with noncommercial traders such as hedge funds, accounts for an estimated 70% of trading in U.S. markets, up from about 57% three years ago, according to the CFTC.
The CFTC has said it isn't clear whether speculators are driving up prices, since some people may be betting that prices will fall, while others may be betting that prices will rise. The agency has promised to report to Congress by mid-September on the role played by swaps dealers.
The U.S. Senate may take up a similar measure later this summer, according to a spokesman for Senate Majority Leader Harry Reid (D., Nev.) With numerous bills dealing with energy market speculation under consideration, it isn't clear which measure, if any, might become law.
--Henry J. Pulizzi contributed to this article.
Write to Siobhan Hughes at siobhan.hughes@dowjones.com1
