President’s Anti-Speculation Campaign Draws Skepticism

Under pressure to address high gasoline prices in a politically charged election cycle, President Obama outlined an initiative to strengthen oversight of energy markets.  It is important to note that some of the President’s proposals require significant budget increases – including an additional $52 million in CFTC funding.  To garner such increased appropriations as lawmakers ready for the campaign trail with the budget a hot-button issues seems highly unlikely.

The President plan would:

1)      Increase funding to increase the number of surveillance and enforcement staff charged with oversight of the oil futures market;

2)      Allow the Commodity Futures Trading Commission (CFTC) to upgrade the technology used to monitor the energy markets;

3)      Increase the civil and criminal penalties for those convicted of manipulating the oil futures market;

4)      Provide the CFTC with additional the authority to limit disruptions in the oil market, including allowing the CFTC to direct exchanges to raise margin requirements; and

5)      Expand access to CFTC data so that analysts can better understand trading trends in the oil markets.

CME Group quickly issued a response warning the Administration against “mistakenly categorizing speculation as a form of manipulation.”  Moreover, CME Group defended the exchange’s right to set margins.  “The Administration must recognize that exchanges, as operators of regulated energy markets, are in the best position to monitor volatility and manage margin requirements,” CME Group said.

Potentially noteworthy: In his Rose Garden speech unveiling the initiative President Obama invoked Enron as a cautionary tale.  A day later, CFTC Chairman Gensler also invoked Enron as justification for the swap dealer rule.  Ten years later, Enron continue to have political traction.

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CFTC rulemakings and ethanol mandate discussed on policy call

ON CMC’s member-only policy call this week (8/16/2011), members discussed the ethanol mandate from the policy, political and legislative process perspectives, keeping in mind the newly formed “super committee” of 12 congressmen and senators. Additionally, members were apprised of CMC’s recent letter to the CFTC on the Commission’s recording requirements proposal, colloquially known as the “tape recording” issue.

CRS Report on Hedge Funds & Oil Prices

Read the recently released CRS Report on Hedge Fund Speculation and Oil Prices.  The 24 page report emphasizes that it does not explain causes of oil price movement but provides a context for evaluating arguments about speculators.

In Case You Missed It…5 Articles To Read

  1. Is Geithner leaving Treasury? General consensus seems to be “probably,” but only later this year.
  2. The WSJ sat down with CFTC Chairman Gensler for an in-depth interview.
  3. The Washington Post takes a look at what is going on in the oil markets.
  4. Looks like there may be an ethanol deal coming this week.
  5. Brussels agrees to delay OTC rules until the fall, but pressure will be on member states to reach an agreement on the scope of the rules as well as interoperability.

 

End Users Community Gets Some Reassurances

Remember when CMC (and many others!) argued that our markets and our market participants were not the ones that caused the financial crisis?

Instead, we pointed to the impeccable performance record of exchanges and clearinghouses.  In a battle of letters, Fed Chairman Ben Bernanke acknowledged that some end users may not present a systemic risk – though he continues to draw a distinction between financial and nonfinancial end users.  This could bode well for CMC’s effort on capital and margin requirements as well as the swap dealer definition.

“Nonfinancial end users appear to pose minimal risks to the safety and soundness of covered swap entities and to U.S. financial stability.” – Bernanke Letter to Stabenow

Meanwhile, Rep. Owens (D-NY)  is working on a bipartisan letter advocating for commercial end users.  The letter, which CMC is supporting, is slated to be sent to Chairman Gensler later this month.

Obama releasing 30M barrels from US oil reserve to offset Mideast turmoil, high gas prices

By Associated Press, Updated: Thursday, June 23, 12:48 PM

WASHINGTON — Wary of a new surge in gas prices, the Obama administration said Thursday it is releasing 30 million barrels of oil from the country’s emergency reserve as part of a broader international response to lost oil supplies caused by turmoil in the Middle East and North Africa, particularly Libya.

The release from the U.S. Strategic Petroleum Reserve will be the largest ever, amounting to half of a 60 million-barrel international infusion of oil planned for the world market over the next month.

White House officials would not predict how the release of the oil will affect prices at the pump, although the move is intended to increase U.S. supplies during the peak summer driving season. Read more of this post

France Warns of Hunger as Farm Ministers Meet

In what is sure to be a historical meeting of agricultural ministers from G20 countries occurs this week, France is pushing hard for reforms that include eliminating speculators from markets.  They are also proposing a centralized database of stocks, limits on export bans, international market regulation, emergency stockpiles and a plan to raise global output.

See bold comments below.

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