Cantwell, Snowe ask CFTC to start regulating ICE's US oil contracts

Two US senators asked the Commodity Futures Trading Commission on July 8 to revoke exemption of the InterContinental Exchange’s US crude oil contracts from direct US oversight.

Two US senators asked the Commodity Futures Trading Commission on July 8 to revoke exemption of the InterContinental Exchange’s US crude oil contracts from direct US oversight.

"It is clear that the commission has the legal authority to immediately require ICE Futures to show cause as to why its U.S. based contracts should not be subject to the same level of oversight and transparency that are applied to fully regulated U.S. exchanges," Sens. Maria E. Cantwell (D-Wash.) and Olympia J. Snowe (R-Maine) said in their letter to the CFTC.

"We strongly believe that the commission must expeditiously review the current oversight over foreign boards of trade that are selling American products and develop policies that provide, at the very least, comparable oversight," they continued.

Their letter came one day after CFTC Chairman Gary G. Gensler announced that the commission would consider imposing position limits on energy commodities for speculators, and review whether swap dealers, index traders and exchange-traded fund managers should be exempt from these limits.

Cantwell and Snowe said that crude oil prices have doubled since December, and that supply and demand indicators do not seem to support the increase.

“During this same time, we have seen commodity index funds pour an estimated $40 billion back into commodity indexes, raising total investment from around $87 billion up to over $140 billion at the beginning of June. This resulted in the buying of 125-155 million bbl of crude oil in the futures markets, raising index speculators’ stockpile of crude oil futures from approximately 435 million bbl on Jan. 1 up to more than 575 million bbl by the end of May,” they said.

This oil price increase is strikingly similar to last year’s price spike, they maintained. “At that time, large financial firms were investing significant resources into the oil futures market and [CFTC] data from that period showed that prices were more closely aligned to speculative activities than to the fundamental laws of supply and demand. Clearly, other factors influence the price of oil, yet these facts raise questions regarding the role of noncommercial speculators in the futures markets,” Cantwell and Snowe said in their letter.

“Rising oil prices are threatening to derail comprehensive efforts to restore the health of the nation’s economy and are harming oil consumers during the worst economic climate since the Great Depression in the 1930s. This provides the [CFTC] a new opportunity to live up to its statutory responsibility to protect the US economy and oil consumers by responsibly enforcing U.S. commodity trading laws,” they told Gensler and the three other commissioners.

Contact Nick Snow atnicks@pennwell.com

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