x Abu Dhabi, UAEMonday 24 July 2017

OPEC warns on oil speculators

Speculators can damage world economy, OPEC's secretary general says, as US government says it may tighten rules on oil traders.

Oil price speculators have the potential to damage the world economy, OPEC's secretary general warned Wednesday, a day after the US government said it may tighten rules on oil traders.
Oil price speculators have the potential to damage the world economy, OPEC's secretary general warned Wednesday, a day after the US government said it may tighten rules on oil traders.

Oil price speculators have the potential to damage the world economy, OPEC's secretary general warned Wednesday, a day after the US government said it may tighten rules on oil traders. "Excess speculation will not help us," said Abdulla el Badri at the launch of the group's World Oil Outlook. "I hope we will not reach the stage of oil prices rising to $150; I hope this will prevent speculators from attacking the market again."

Speculators, who buy and sell crude solely to make a profit, were blamed by OPEC last year when prices hit a record above UA$147 a barrel. Some experts say oil prices would be less volatile if participation in the market was limited to firms such as refiners and airlines that need to buy and sell barrels of oil as part of their business. On Tuesday, the new head of the US Commodities Futures Trading Commission (CFTC), which regulates American commodities exchanges, said he would consider putting new limits on speculators.

"My firm belief is that we must aggressively use all existing authorities to ensure market integrity," said Gary Gensler, the chairman of the CFTC. Mr Gensler said he would hold hearings to determine whether the CFTC should place limits on the amount of oil futures contracts - or size of position - each speculator could take. The CFTC will also expand its weekly report on exchange activity to take note of positions held by professionally managed market positions, such as hedge funds, and will now include swaps dealers under a separate category. A swap is a broad category of transactions popular among oil traders in which an investor can gain indirect exposure to a futures contract.

The CFTC will also include data of contracts determined to perform a significant price discovery function, a category that could include Dubai's own Oman Oil Futures Contract. The proposed changes represent a sizeable shift from current rules, under which the CFTC provides a simple weekly breakdown of trades by two types of participants: commercial firms, a group that includes refiners and oil companies, and non-commercials, such as hedge funds and investment banks.

Tom Leaver, the chief executive of the Dubai Mercantile Exchange (DME), said he would follow the CFTC hearings with interest and offer the commission all the information it needs to decide on new limits. The DME's Oman contract is traded in the US as well as Dubai, and the exchange is regulated by the Dubai Financial Services Authority, which has a memorandum of understanding with the CFTC. The Dubai Gold and Commodities Exchange (DGCX), which trades oil futures contracts that originated in the US and Europe, said changes to CFTC rules would not affect trading on its floor.

More market information was good, but was unlikely by itself to reduce volatility in oil prices, said Bassam Fattouh, a researcher at the Oxford Institute for Energy Studies who has focused on commodities markets. Prices would continue to swing wildly within a large band of between $60 and $85 a barrel because of uncertainty about the highly complex, global market, he said. cstanton@thenational.ae