A reader in California responds to Jared A. Favole and Tennille Tracy’s story “WSJE(4/18) Obama Seeks Oil-Market Curbs”:
President Barack Obama doesn’t realize that raising margin requirements outright would also make it more difficult for short sellers in the oil market.
Having traded oil futures for over 10 years, I understand how leverage and margin can affect the ability to create new positions in futures markets. If Obama wishes to limit the speculation that is pushing prices upward, he should only increase trading margin requirements on speculative long positions, not on short positions. This would give the advantage to short sellers, the ammunition they need to overpower the bulls.
If we’re going to pick winners and losers, for the sake of the country, the Commodity Futures Trading Commission must have policies favoring short sellers, as long as the price of oil remains above $100 and as long as large speculative noncommercial traders hold a net long position in oil futures contracts.
(TALK BACK comments may well be submitted by readers who have a financial interest in the securities that are being discussed.)
(TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkbackAmericas@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments. )
Here is the original item:
WSJE(4/18) Obama Seeks Oil-Market Curbs (From THE WALL STREET JOURNAL EUROPE) By Jared A. Favole and Tennille Tracy
WASHINGTON — President Barack Obama on Tuesday called for increasing
penalties on oil speculators and boosting oversight of U.S. energy as part of a
plan to crack down on an “irresponsible few” who he says rig oil markets.
“Rising gas prices means a rough ride for a lot of families,” Mr. Obama said
in a White House Rose Garden speech. “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
Mr. Obama said Congress should boost enforcement staff at the Commodity
Futures Trading Commission to oversee energy markets and increase penalties for
market manipulation to $10 million from $1 million, to be levied for every day a
violation occurs. He also asked Congress to give the CFTC authority to raise
margin requirements on traders who buy and sell oil futures.
The plan follows criticisms from Republicans that the president isn’t doing
enough to lower gasoline prices, which have risen 10% in recent months. Mr.
Obama acknowledged that it isn’t clear what impact his proposals would have on
prices. “None of these steps by themselves will bring gas prices down
overnight,” he said.
Energy experts have long debated the role of speculative trading in
determining oil prices, the primary factor in gasoline costs. Some experts say
traders play a valuable role by providing liquidity to the commodity markets.
Others say they make the market more volatile because they bet on future price
The bulk of the president’s proposal would require approval from Congress,
leaving its fate partly in the hands of Republicans, who control the House.
Unlike their Democratic colleagues, they haven’t shown interest in passing such
Republicans, who say restrictions on domestic oil production play a central
role in driving up fuel costs, were quick to criticize the president’s
announcement. “If I were to guess, I’d say today’s proposal by the president
probably polls pretty well,” Senate Minority Leader Mitch McConnell (R., Ky.)
said. “But I guarantee you it won’t do a thing to lower the price of gas at the
pump. It never has in the past. White House officials admit as much. Why it
would it now?”
The president said anyone who thinks oil speculators can’t raise prices should
“think back to how Enron traders manipulated the price of electricity to reap
huge profits at everybody else’s expense.” Enron Corp., one the largest
energy-trading companies, filed for bankruptcy in 2001 in a historic accounting
He has said the recent rise in gas prices is the result of global forces, too,
including demand from countries like China and India. Also helping to push up
prices are concerns over Iran, which is facing tighter sanctions from the U.S.
and the European Union. Iran is the third-largest exporter of crude oil,
according to the Energy Information Administration.
The CFTC is currently writing rules to limit speculative trading in oil and
other commodity markets, but Democrats have said it is moving too slowly.