A group of large industrial natural gas consumers has called on the Commodity Futures Trading Commission (CFTC) to assess the potential negative influence of hedge fund activity on volatility and gas prices and to recommend to Congress statutory changes that are needed to properly oversee hedge fund market players.
“Natural gas has been particularly volatile, which makes it appropriate to assess the sufficiency of the rules for trading and the oversight to make sure those rules are consistently followed and are sufficient,” said the Consumer Alliance for Affordable Natural Gas (CAANG) in comments filed with the Senate Energy and Natural Resources Committee.
“The overarching focus of markets should be enhancing the ability of sellers and buyers to meet demand efficiently. The market system should not exist to reward trading for trading’s sake,” the group noted.
The CAANG submitted this and other policy changes to the Senate energy panel for consideration during its upcoming conference on natural gas supply and demand that is scheduled for Jan. 24 (see Daily GPI, Jan. 10, Jan. 11).
In addition, Congress should order a study of over-the-counter markets’ capacity to manage natural gas contracts efficiently and fairly, the consumer group advised Senate lawmakers.
The CAANG also believes that the CFTC ought to review the effectiveness of current daily trading limit standards in reducing volatility. Specifically, it suggested that the market’s experience with agriculture futures contracts be examined to determine how futures contract design could lessen volatility.
Furthermore, the CFTC should report to Congress on whether the current number of contracts a single entity can own (12,000) allows for such a concentration of contracts that it may distort free movement of the market, the CAANG said. It noted that the CFTC should recommend any changes to contract limits to Congress.
Lastly, the group called on lawmakers to direct the Energy Information Administration to review its storage reporting policies and procedures and make changes that would increase the accuracy and reliability of the data used by traders.
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