Analysts react to Obama plan for curbing oil speculation
The White House unveiled a proposal on Tuesday to crack down on speculation in oil markets which has been blamed by some politicians for the rising price of crude and fuel.
The plan calls for a tenfold increase in the maximum civil and criminal penalties that can be applied for the manipulation of oil futures markets, the White House said.
The Obama administration is also calling for Congress to provide more funding to the Commodity Futures Trading Commission to increase surveillance and enforcement staff for oil futures market trading. The proposal also calls on the CFTC to be given the power to raise margin requirements in oil futures markets.
The rising cost of oil and fuel in the world's top consumer has become a central focus of the U.S. presidential election this year.
The following are comments from oil analysts, politicians and traders on the Obama proposal.
MICHAEL WITTNER, GLOBAL HEAD OF OIL RESEARCH AT SOCIETE GENERALE:
"I think this is unlikely to pass before November. Obviously we're in an election year so it's very political, but the only scenario I can see it possibly passing under before then is if there's a huge spike as a result of a major supply disruption from Iran. That's the only way I see it getting enough bi-partisan support. Otherwise I'd expect there to be some push-back from the Republicans.
"The other point is the CFTC already works very closely with the exchanges, and I'd imagine they would continue to do so if they were given powers over oil margin requirements. They're still going to rely on the exchanges expertise."
CARL LARRY, PRESIDENT, OIL OUTLOOKS LLC, NEW YORK, NY
"There is little market manipulation in the oil markets and this is an easy way for him (Obama) to break it to the American people that oil is cheap in America.
"We have some of the cheapest oil prices in the world. They can't change margins too much because that undermines free market principles.
"If they raise margins on (speculators) and not on commercials, liquidity dries up and prices go higher. If they raise hedging margins, then capital that would be used to produce cheaper oil will go to maintain margins and oil goes up."
JAY LEVINE, BROKER, ENERJAY, LLC, PORTLAND, MAINE
"Any 'outside' intervention (by the government) usually doesn't last or alter the picture that was in place before any threat of intervention. The market's going to do what they were doing or going to do before. With that said, the intervention throws a monkey wrench in the short-term picture and typically only adds to market direction uncertainty.
"Raising margins is the easiest way the exchange (vis-à-vis the government) makes it harder for the small speculator to trade, thus removing the small speculator, not really the larger ones. Liquidity might become a greater issue with fewer small players in the market. Reduced liquidity often means greater volatility, the exact opposite of its purpose."
JOHN KILDUFF, PARTNER AT AGAIN CAPITAL LLC IN NEW YORK
"The call for much higher margin requirements has been a rallying cry for the those who prefer to blame the price discovery mechanism for the underlying conditions that produce the prices being paid.
"Oil supplies are routinely under threat from governments that control the spigot and disaffected populations that want a bigger piece of the rock. Demand has gone nowhere but up.
"Having said that, we look forward to seeing the natural gas market speculators feted at the White House soon for their work in reducing prices upward of 90 percent in several short years.
"Regarding manipulation, it is serious and damages the reputation of the markets. The penalties should be severe." (Reporting by Eileen Houlihan, Janet McGurty, David Sheppard in New York; editing by Jim Marshall)
