By Simon Miller
The US Commodities Futures Trading Commission (CFTC) has welcomed President Obama's announcement to put more "cops on the beat" to combat oil speculation in the markets.
In his election year, Obama is worried that rising oil prices is hitting families and blames speculator activity on oil markets.
He commented: "Rising gas prices means a rough ride for a lot of families. It's like an additional tax that comes right out of your pocket."
While measures will have to be passed by Congress, they included a six-fold increase in the number of staff who scrutinies the trading of oil futures contracts at the CFTC and also wants penalities for manipulation of that market to got up from $1m and 10 years imprisonment to $10m plus sentencing that reflects the seriousness of the misconduct.
In a statement, CFTC chairman Gary Gensler commented: “The recent increase in prices of gas at the pump affect every American family. It is but another reminder that markets need to be transparent, competitive, and free of fraud, manipulation and other abuses. Furthermore, as markets include both hedgers and speculators, it is critical for market integrity that no single speculator is able to obtain an overly concentrated position."
He added: "I support President Obama’s five-part plan, which strengthens the CFTC’s existing tools to be effective cops on the beat in the energy markets. It builds on progress we have already made to shine the light of transparency on the unregulated swaps market and new anti-fraud and anti-manipulation reforms the agency has implemented.”
However, the oil industry will be concerned over the rising costs that will come from an increase in margins on trades.
Obama wants the CFTC to have the authority to raise margin requirements in the oil futures markets to "prevent excessive speculation or manipulation" but, aside from pushing up costs, there will be concern that this could drain liquidity from the market or collapse the oil price if long investors are shut out.