Excessive Speculation In Markets Target of CFTC

The Commodity Futures Trading Commission is looking closely for signs of excessive speculation in commodity markets, with specific attention on oil prices, which have surged in recent months, an agency commissioner said Tuesday.

A U.S. Senate subcommittee report last week blamed big speculators for overinflating wheat prices in recent years.

The report said commodity index funds drove up wheat prices so high in 2008 that it became impossible for grain firms using the Chicago Board of Trade contracts to hedge their positions.

Carl Levin, chairman of the Senate Permanent Subcommittee on Investigations, said the CFTC should take a closer look at other commodities, such as oil, to determine whether index traders have played a role in excessive speculation.

"Yes, we're going to be looking at other commodities in the future and we're considering that right now, actually," Bart Chilton said in an interview with Reuters Television, noting "the energy complex, with specific emphasis on oil, is something we're very keen on."

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A slew of essential commodities -- including oil, wheat, copper and platinum -- surged last year on what some analysts said was excessive speculation and big money inflows. Wheat soared to a high of $13.34 a bushel in Chicago and crude oil shot above $147 a barrel.

Like other commodity prices, oil deflated in the face of financial turmoil before dipping below $40 a barrel this year. But oil has since climbed to above $70 a barrel despite slumping demand and high supplies.

Soybeans and copper also have been rising. A recent jump in commodity prices could mean investors are betting on a recovery in the global economy.

But other traders and analysts worry the fundamentals don't support such optimism and another bubble could be forming.

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"Something is going on in these markets and it's our job to make sure it's nothing illegal. That there's not any overt manipulation to ensure that we can protect consumers so that they don't pay a high prices at the gas pump," said Chilton.

The Senate panel criticized the CFTC for being too lax on position limits.

In an effort to stop excessive speculation, a problem the CFTC helped cause, the report recommended the agency phase out existing waivers and enforce the standard limit of 6,500 positions for index traders in the wheat market. Chilton echoed calls for a hard cap on position limits.

We need to have "a limit on the amount a trader can have in some of these markets to ensure that they don't have an inordinate and unanticipated impact on price," he said.

As part of a broader regulatory reform proposal issued earlier this month, the Obama administration said it wanted the Securities and Exchange Commission and the CFTC to develop recommendations to "harmonize" securities and futures rules and regulations, which sometimes overlap between the two agencies.

"They've started. President Obama laid out a plan that really sort of lit a fire I think under both the SEC and CFTC. We're meeting together trying to resolve some of these areas of mutual interest," said Chilton.

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