Crude holding
We meant to highlight this when it came out midweek. The U.S. Senate is officially backing away from raising margins on oil traders. And why? Because, as much as they’d like to lower high energy prices for poor old Aunt Bertha in Black Shear, Georgia, they would like to not tick off their deeper-pocketed constituencies more. Read on for a true look at the men behind the curtain.
In a big win for the U.S. futures industry, new Senate legislation unveiled on Wednesday would not impose higher margins on oil traders but would still aim to rein in excessive speculation in energy markets.
Futures markets participants had feared that earlier legislation introduced by Sen. Byron Dorgan to boost significantly the amount of money, or margin, that speculators would have to put up to trade oil futures would make it into the final anti-speculation bill.
Dorgan had sought to increase margins for speculators to 25 percent of the underlying value of the oil — much higher than the current 5 to 7 percent margin requirements. But when Senate Majority Leader Harry Reid unveiled the bill on Wednesday morning, he left out the higher margins, apparently to win more support for the measure.
Higher margins would have made it more expensive to trade in U.S. futures markets such as the New York Mercantile Exchange. Futures industry officials had warned that if margins were significantly raised, the United States would lose business to overseas exchanges or less-regulated U.S. markets.
Still, Reid’s bill would require the Commodity Futures Trading Commission to distinguish between true hedgers, like airlines, that buy and sell oil futures to offset the risk of high fuel prices, and speculators who bet on the price of oil and never intend to take physical delivery of the crude.
The CFTC would have to convene a panel of experts to help determine the tough position limits that should be imposed on speculators, which would restrict the number of oil futures contracts an individual speculator could control in a delivery month.
Reid said on Wednesday that he hopes to bring the bill to the Senate floor for a vote “in the near future.” A Reid aide said the legislation may come up for vote at the end of this week or early next week.
