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WASHINGTON–U.S. regulators took a first step aimed at clamping down on oil speculation Thursday, proposing new limits on trading in energy futures by Wall Street firms and other market players.

The Commodity Futures Trading Commission voted 4-1 for new trade limits on the New York Mercantile Exchange and the Intercontinental Exchange intended to keep fund managers and other speculative investors from wielding excessive influence in the market.

The proposal is open to public comment for 90 days. It could be formally adopted sometime afterward, possibly with changes.

Several CFTC commissioners voiced concern about the proposal, warning it could drive trading business to unregulated offshore markets.

The number of speculators – investors who profit by trading oil contracts – has risen on the Nymex in recent years. They mostly bet that oil will get more expensive, leading many to believe their activity in the market jacks up prices.

The restraints would apply to futures trading in natural gas; light, sweet crude oil, known as West Texas Intermediate; and New York Harbor heating oil and gasoline.

CFTC officials said the limits as proposed could require trading cuts by around 10 big firms guaranteed high risk personal loans. The limits would apply to traders’ total positions in futures and options contracts. Exemptions would be available for "bona-fide" hedging transactions.

CFTC Commissioner Michael Dunn warned that imposing new limits on energy trading without the agency having authority to regulate the over-the-counter derivatives market could mean "that we will in fact end up with less transparency in the market than we currently have.”

Federal regulation of the shadowy $600 trillion (U.S.) market for derivatives, the complex instruments blamed for playing a role in the financial crisis, is before Congress. It is included in sweeping legislation to overhaul financial regulation passed by the House last month.

The proposed limits are "not going to have a huge effect, and that’s prudent," said Kenneth Medlock, a Rice University economist who has studied the influence of speculators on oil trading. "The last thing you want is to impose something that will give you consequences that you didn’t foresee.”

Associated Press

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