Obama Plans Curbs On Oil Market Manipulation

US President Barack Obama outlined proposals to curb manipulation in oil markets in a speech outside the White House on 17 April. With an eye to presidential elections in November and amid growing concerns in the US over the impact of global oil market trends on US gasoline prices, Mr Obama said: “We can’t afford a situation where speculators artificially manipulate markets by buying up oil, creating the perception of a shortage, and driving prices higher – only to flip the oil for a quick profit.” Among the measures proposed by Mr Obama to strengthen oversight of energy markets were: immediate funding to “put more cops on the beat” to monitor energy trading; tougher penalties for illegal energy market manipulation; and new authority for the Commodity Futures Trading Commission (CFTC) to “protect against volatility and excess speculation by making sure that traders can post appropriate margins, which simply means that they actually have the money to make good on their trades.”

Shortly afterwards the CME Group, operator of the New York Mercantile Exchange (Nymex) and partner in the Dubai Mercantile Exchange (DME), issued a statement saying it agreed that manipulation is detrimental to markets and should be vigorously policed, as is currently being done. “However,” said CME, “we caution against mistakenly categorizing speculation as a form of manipulation. Market makers and speculators, serve an important function in the market – allowing energy users and producers to manage oil price risk and providing the necessary liquidity to ensure effective price discovery and more efficient transfer of price risk. The Administration’s proposal to use margin requirements to control cash prices is misplaced. The Administration must recognize that exchanges, as the operators of regulated energy markets, are in the best position to monitor volatility and manage margin requirements. Margins are based on volatility and cannot be used to manage cash prices. Rather, they serve as important tools for CME Group and other exchanges to use in managing the financial risks of the clearing houses we operate.”

© Copyright MEES 2012.