WASHINGTON (Reuters) - A leading U.S. senator on Tuesday pressed the top futures market regulator for more information about speculation by big investment funds in crude oil futures and other energy markets.
U.S. Sen. Jeff Bingaman, chairman of the U.S. Senate Energy Committee, said Commodity Futures Trading Commission (CFTC) officials provided “glaringly incomplete” data to back up testimony that speculative trading is not the chief reason behind crude oil’s rise above $135 a barrel.
CFTC experts testified that market forces are primarily responsible for the rising price of oil, although investors may be profiting from the trend.
Bingaman, a New Mexico Democrat, sent acting CFTC chairman Walter Lukken a letter asking why the agency classifies large investment banks and other swap dealers as commercial traders -- the same category it uses for more traditional investors in the physical oil market such as oil companies and airlines.
“The practice of including investment banks in the commercial participant category calls into question the CFTC’s continued assertion that non-commercial participants, or speculators, follow rather than lead oil price movements,” Bingaman wrote in the letter.
Bingaman also said a recent trend of institutional investors buying petroleum storage capacity has led to “concerns regarding potential market manipulation strategies,” and asked the CFTC about how it tracks such trading activity.
Oil prices have doubled in the past year as big funds have poured money into commodities, seeking a hedge against inflation and the weaker dollar. The hot money has helped extend a six-year rally in oil, as supplies have failed to keep pace with surging demand in emerging economies like China.
Bingaman sent a wide-ranging questionnaire to Lukken, seeking a response by June 10, Bingaman also asked detailed questions about increased over-the-counter trading in U.S. oil futures contracts on foreign boards of trade.
The CFTC declined to comment on the letter.
Democrats in Congress have been looking for ways to rein in speculation in crude oil trading, which they see as the prime mover behind the surge in U.S. oil futures to record highs.
Senate Majority Leader Harry Reid this month proposed legislation that would prevent traders of U.S. crude oil from routing transactions through off-shore markets to evade speculative limits. It also sets forth reporting requirements.
The bill also requires the CFTC to boost margin requirements for all oil futures trades, in an attempt to put a lid on what Democratic Sen. Byron Dorgan has called “an orgy of speculation in the energy markets.”
As a part of its farm funding bill, Congress this month gave the CFTC more authority. The bill closed the so-called “Enron loophole,” which allows exempt electronic platforms like the Atlanta-based Intercontinental Exchange to trade a host of energy contracts with little government oversight, unlike the regulated New York Mercantile Exchange.
Last month, a CFTC economist told the Senate Energy Committee that “there is no evidence that position changes by speculators precede price changes for crude oil futures contracts.”
Challenging that conclusion, Bingaman asked the CFTC to detail the data used in its analysis.
Bingaman also asked the CFTC why it does not scrutinize energy-related contracts as closely as agricultural commodities like corn, wheat and soybeans, even though energy and food markets are increasingly tied together through biofuel use.
Reporting by Chris Baltimore; Editing by David Gregorio