WASHINGTON U.S. oil futures regulators on Tuesday unveiled a plan to slap the first trading limits on oil contracts that change hands on a London electronic exchange as U.S. lawmakers called for more regulations to rein in speculators.
The U.S. Commodity Futures Trading Commission and its U.K. counterpart reached a deal with ICE Futures Europe (ICE.N) to impose regulations on West Texas Intermediate oil contracts that trade on the London-based electronic exchange within 120 days, the CFTC's chairman told U.S. lawmakers.
The move will place more limits on trading of the U.S. benchmark WTI contract on the London exchange, which hosts up to 30 percent of total volumes. The New York Mercantile Exchange NMX.N, 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 U.S.-style regulations.
Charles Vice, president and chief operating officer of the Atlanta-based IntercontinentalExchange Inc, 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.
U.S. regulators are feeling heat from U.S. 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 percent since January to record highs near $140 a barrel.
NO SMOKING GUN
CFTC Acting Chairman Walter Lukken, whose agency is conducting a nationwide probe of crude oil markets, conceded that "the environment is ripe for those wanting to illegally manipulate the markets."
However, the top U.S. 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 U.S. crude oil trades are reported to the CFTC, and Lukken said he was not certain.
"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 told reporters after testifying before a separate Senate panel. "It doesn't have anything to do with traders on Wall Street or anyplace else."
And Sen. Saxby Chambliss, Georgia Republican, said Democrats are rushing to legislate without all the facts.
"Simply assigning blame won't yield results, especially when the main problem is supply and demand," he said.
Lukken said his agency is trying to strike the proper balance of regulations without chasing business away from regulated exchanges like the NYMEX.
The CFTC is also taking a closer look at "swap" deals offered by big investment banks like Goldman Sachs (GS.N) and Morgan Stanley (MS.N) to see if they allow agency rules that limit the number of oil contracts any one trader can hold, Lukken said.
(Editing by Christian Wiessner)