Action against oil speculators could backfire
LONDON (Reuters) - Politicians in the United States and Europe want curbs on speculators to cool record high oil prices, but the imposition of new regulation could do more harm than good, a senior UK futures market executive said.
"We must avoid a knee-jerk reaction that could be damaging to the markets," said Anthony Belchambers, chief executive of the UK-based Futures and Options Association.
"When we talk about speculative money we must be careful not to confuse speculation with manipulation," he said in an interview this week.
U.S. crude last week hit a record of nearly $140 a barrel, after a six-year rally, driven partly by expectations supply will struggle to keep pace with demand from newly industrializing countries such as China and India.
But politicians, facing protests from consumers over high gasoline prices, have blamed speculators for accelerating the surge in prices since the start of this year.
Italian Economy Minister Giulio Tremonti has said he would propose measures to limit speculation in oil at a meeting of the Group of Eight nations in Japan at the weekend.
U.S. regulators were in Europe this week discussing possible action with their counterparts, including Britain's financial watchdog the Financial Services Authority (FSA).
Speculators will be under the spotlight next week in talks between the Organization of the Petroleum Exporting Countries and consuming countries in Jeddah.
Belchambers said politicians were under pressure to be seen to be doing something about high energy and food prices, but targeting speculators was not the answer, when supply/demand fundamentals were the main factors pushing oil higher.
HARD TO MEASURE
Speculation has had an impact on the oil price, but it is hard to quantify, he said.
Futures markets were originally developed for producers or end-users of physical commodities.
"Then funds came in and banks and then of course hedge funds, which can have a more buccaneering attitude to markets."
This has changed the shape of the futures markets, but the so-called speculators add liquidity.
"Those who trade on price rather than taking delivery of a product or are hedging, are a major part of market liquidity," Belchambers said. Continued...
