High oil trade margins could weed out speculators

NEW YORK (Reuters) - Significantly increasing the amount of money that hedge funds and other speculators have to put up to trade oil and petroleum products would help weed out speculative investors and probably lower prices for the underlying commodities, a hedge fund manager said Wednesday.

Legislation is pending in the U.S. Congress that would require the Commodity Futures Trading Commission, which regulates NYMEX, to significantly raise the amount of money, or margin, that speculators have to put up to trade energy futures.

When purchasing stocks, many brokerage firms require investors to have between 30 percent and 40 percent of the market value of the securities in margin accounts.

Margin requirements for futures are generally lower, less than 10 percent for many contracts, such as oil.

"If they took it to 20 or 30 percent, you would have a shakeout," John Olson, co-founder of the Houston Energy Partners hedge fund, told the Reuters Global Energy Summit. "That would separate the men from the boys."

Olson said higher margins for speculators would cause a "dramatic decline" in the volatility, or wild price swings, for oil and other commodities, and would result in pushing down prices. "I think it would have some effect (on lowering prices)," he said. "I definitely think it would happen."

However, U.S. Energy Secretary Sam Bodman has said he does not think raising margins would curb speculators.

The chairman of the Commodity Futures Trading Commission, Walt Lukken, has warned Congress that increasing margins would move energy trading off regulated U.S. commodity exchanges.

Guy Caruso, who heads the federal Energy Information Administration, said at the Reuters Energy Summit this week that strong global oil demand and tight supplies are the main reason for high fuel prices, not speculators.

"We continue to believe that when you have a fundamentally tight market like this ... that it takes a large price to get -- to rebalance the market," he said.

Separately, Olson said the CFTC's new policy of requiring more information on trading carried out by commodity index funds in U.S. markets and on contracts based on the value of American crude that are traded in London was overdue "when you have so much oil trading and speculation."

(For summit blog: summitnotebook.reuters.com/)

(Editing by Christian Wiessner)