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After its July Defeat, Anti-Speculation Bill Clears House

Against a backdrop of falling crude oil and natural gas prices, the House last Thursday passed by an overwhelming margin legislation that seeks to curb "excessive" speculation in the energy markets.

By 283 to 133, lawmakers approved HR 6604, which would set position limits for speculators in energy and agricultural commodities and directs the Commodity Futures Trading Commission (CFTC) to establish position limits for any trader with respect to designated contract markets, derivative transaction execution facilities and electronic trading facilities.

The bill initially was brought to the House floor in late July. However, it failed to garner the two-thirds majority vote required under the suspension of House rules (see NGI, Aug. 4). This time it was considered under closed rule, requiring only a simple majority to pass.

"We anticipate the measure will...be referred to the Senate. The Senate, however, did not seem to have anti-speculation on its long list of actions planned before hoped-for adjournment on Sept. 26," said energy analysts Christine Tezak and K. Whitney Stanco of Stanford Group Co.

"That being said, a lame duck session is looking increasingly likely, particularly in the context of the nation's current upheaval in the financial markets. If Congress returns for a lame duck in November, we think that the Senate may find time to return to the speculation theme and this bill may have a decent chance of finding its way into law, but the discussion could easily slide until the next Congress," they said.

But Sen. Dianne Feinstein (D-CA), a leading proponent of more government oversight over futures trading, said the Senate "should soon follow" with its anti-speculation measure.

House Speaker Nancy Pelosi (D-CA) touted the lawmakers' action on market speculation. "Experts have testified before Congress that excessive speculation in the oil markets may be responsible for inflating oil prices by as much as $20 to $60 per barrel. With the legislation passed today, we have taken strong action to curb excessive speculation in the energy futures market," she said.

The Industrial Energy Consumers Association (IECA) last Thursday reported that "excessive" speculation cost natural gas consumers more than $40.4 billion between January and August compared to the year-ago period.

"During this same time period, the Energy Information Administration reports that domestic production increased by 8.6%; demand was essentially unchanged from the previous year; and...national inventories were in the normal range for this time of the year. These facts prove that the price spike was not driven by supply versus demand fundamentals," said IECA President Paul N. Cicio.

In addition to setting position limits, the House bill directs the CFTC to require regular reporting of fungible over-the-counter (OTC) agricultural and energy transactions; determine if such transactions have the potential to disrupt market liquidity or cause market or price disturbances; and if so to use its discretion to impose position limits.

The measure also closes the so-called "London Loophole" by preventing U.S. energy futures from being traded on foreign exchanges with no CFTC oversight and no speculation limits. And it requires the CFTC to improve transparency and reporting requirements for swaps dealers who impact prices on regulated energy markets.

The bill calls for the hiring of at least 100 new full-time employees at the CFTC as well.

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