OPEC seeks crackdown on speculators

By Alexander Kwiatkowski and Randall Hackley
Bloomberg News / March 23, 2010

"The market must be regulated to avoid excessive price volatility, said Mohamed al-Hamli of the United Arab Emirates"

GENEVA — Oil speculators, including traders at hedge funds and investment banks, intensify crude price volatility and need to be regulated, ministers of the Organization of Petroleum Exporting Countries said yesterday.

“Acute and excessive price speculation’’ is determining oil prices, Germanico Pinto, OPEC’s president and Ecuador’s oil minister, said at a conference in Geneva. “Prices are driven by something totally unrelated to supply and demand.’’

OPEC agreed last week in Vienna to keep production quotas unchanged as ministers expressed contentment with oil at about $80 a barrel. While prices are “not high at all,’’ and at a level that is acceptable to producers, the market must still be regulated to avoid excessive price volatility, according to the United Arab Emirates’ oil minister, Mohamed al-Hamli.

“We always have problems with speculators, especially noncommercial speculators,’’ Hamli told reporters at the conference. “We need some regulation, because we see prices very high and very low and sometimes they attribute this to OPEC.’’

Regulators and politicians blamed speculators for record oil prices in 2008. The Commodity Futures Trading Commission, or CFTC, has proposed rules to prevent investors from holding large amounts of energy futures following oil’s swing from a record $147.27 in July 2008 to almost $30 the following December.

The position limits the CFTC is considering would apply to any investor who owns oil and other energy futures that trade on the New York Mercantile Exchange and the ICE Futures Europe exchange in London. The restrictions, currently in a 90-day public comment period, are designed to control risk and keep a single trader from gaining too much control of the market.

“We welcome recent proposals by the CFTC to regulate energy contracts held by hedge funds, investment banks, and other speculators,’’ Hamli said at the UN Conference on Trade and Development’s inaugural global commodities forum. “We ask for greater regulatory oversight on markets over which we have no control.’’

All markets need speculators to some degree because they bring price stability, Richard Jones, deputy executive director of the International Energy Agency, said at the conference.

Pinto said oil market regulation is a matter for individual countries and Ecuador supplies crude only under term contracts.

Oil prices are in a period of “relative stability,’’ which may last “for the next months during this year,’’ Pinto said. OPEC member countries have a “comfortable cushion of spare capacity,’’ in excess of 6 million barrels a day, he added.

Crude oil for April delivery gained 57 cents, or 0.7 percent, yesterday to settle at $81.25 a barrel on the New York Mercantile Exchange. Futures have climbed 59 percent in the past year.