Business | Oil & Gas
US unveils new regulation on overseas crude trades
US oil futures regulators have unveiled a plan to slap the first trading limits on oil contracts that change hands on a London electronic exchange as US lawmakers called for more regulations to rein in speculators.
- Reuters
- Published: 00:04 June 19, 2008
Washington: US oil futures regulators have unveiled a plan to slap the first trading limits on oil contracts that change hands on a London electronic exchange as US lawmakers called for more regulations to rein in speculators.
The US Commodity Futures Trading Commission and its UK counterpart reached a deal with ICE Futures Europe to impose regulations on West Texas Intermediate oil contracts that trade on the London electronic exchange within 120 days, the CFTC's chairman told US lawmakers.
The move will place more limits on trading of the US benchmark WTI contract on the London exchange, which hosts up to 30 per cent of total volumes. The New York Mercantile Exchange, which the CFTC regulates, has the rest.
Lawmakers said the lack of limits on the ICE exchange created what they call the "London loophole" that allows oil traders to evade US-style regulations.
Charles Vice, president of the Atlanta-based IntercontinentalExchange, said it is "highly unlikely" that ICE Futures Europe is the "primary driver" behind WTI prices.
Expectations that more regulations on ICE trading will tame prices "are likely to go unmet", Vice said.
US regulators are feeling heat from US lawmakers to rein in what they see as excessive speculation in commodities markets, which they believe is the culprit behind record crude oil prices that have risen nearly 40 per cent since January to record highs near $140 a barrel.
No smoking gun
CFTC acting chairman Walter Lukken conceded that "the environment is ripe for those wanting to manipulate the markets".
However, the top US futures market regulator said there was no "smoking gun" that indicates that speculators are to blame for record oil prices.
Democrats on the joint Senate panel said the CFTC lacks enough information to make that determination.
Sen Richard Durbin, Illinois Democrat, asked Lukken what percentage of US crude trades are reported to CFTC, and Lukken said he was not sure.
"Precisely, and that is one of the reasons why we are here. You don't know," Durbin told Lukken. "You can't answer that question."
However, billionaire oil investor T Boone Pickens said boosting the CFTC's oversight of oil markets was "a waste of time", and said speculation is not to blame for oil prices.
"It's a global market," Pickens said after testifying before a separate Senate panel.
"It doesn't have anything to do with traders on Wall Street or anyplace else."
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