Monday January 18, 2010

The US Commodities Futures Trading Commission last week proposed to set position limits for futures and option contracts in the major energy markets in a move hailed by the Air Transport Assn.

According to CFTC, the Notice of Proposed Rulemaking is intended "to prevent excessive concentration in these markets, consistent with CFTC's statutory framework to prevent or diminish excessive speculation that may be a burden on interstate commerce."

Airlines and other energy-dependent industries have argued that excessive speculation in the energy markets by financial players is behind much of the extreme volatility in oil prices over the past few years, including the dramatic run-up during the first half of 2008. CFTC noted that it sets positions in certain agricultural markets and until 2001 position limits existed in the energy markets.

"Unnecessary speculation is adversely affecting the nation's economy and the airlines' recovery," ATA President and CEO James May said. "We applaud the CFTC for its action to protect consumers and the fragile economy from reckless oil speculation.

Adoption of the CFTC rule coupled with congressional action to remove loopholes will comprehensively address the problem." The NPRM maintains exemptions for entities "using the futures markets to hedge commercial risks," such as airlines.

The proposed regulations, if finalized, will cover four commodities, including West Texas Intermediate crude and New York Harbor No. 2 heating oil, which trade on the New York Mercantile Exchange and the IntercontinentalExchange in Atlanta.