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Big banks, Shell blast CFTC position limit plan

“Royal Dutch Shell is the only major oil company objecting to the plan by the U.S. Commodity Futures Trading Commission to limit speculative positions in U.S. oil and gas futures. In view of its track record of market manipulation, including false reporting, fictitious sales, fictitious trades and manipulation of natural gas prices, the attempt to block regulation is predicable by the predatory oil giant which has no shame.”

REUTERS

WASHINGTON

Wed Apr 28, 2010 3:43pm ED

(Reuters) – The biggest Wall Street energy traders and top producers filed fierce last-minute objections to a proposed plan to limit speculative positions in U.S. oil and gas futures, hoping to halt a crackdown that has been lauded by consumers but decried by market participants.

In letters to the Commodity Futures Trading Commission released on Wednesday, Morgan Stanley, Barclays Capital and BlackRock Inc joined others in saying the proposal to set a hard cap on the number of contracts any single party can hold would hurt hedgers and lead to a loss of liquidity.

“We are concerned that the current proposal is premature, unnecessarily complex and operationally unworkable,” wrote Joseph Gold, managing director with Barclays Capital, warning it could force many large, diverse traders to downsize significantly or divest portions of their businesses.

Morgan Stanley, which along with Goldman Sachs has long been the biggest energy trader on Wall Street, urged the agency not to take action until broad financial regulatory reform pending in the U.S. Senate is complete.

Five Democratic lawmakers countered these claims from financial firms, arguing in a letter that the CFTC should not wait for Congressional action before instituting position limits.

The Representatives, including Bart Stupak of Michigan, urged the CFTC to implement aggregate position limits across all markets, taking into account market participants’ full positions in over-the-counter and foreign markets.

The House passed financial reform last year.

Royal Dutch Shell, the only major oil company to weigh in on the plan, said the limits would add costs without yielding benefits. The American Petroleum Institute, the leading trade group for oil and natural gas industry, warned that the limits could severely limit hedging activity of energy companies that engage in swap trading.

CFTC Commissioner Gary Gensler told Reuters on Monday that he was still wading through the thousands of comment letters and there is no timetable for making a decision on the energy position limit proposal.

The firms’ letters released Wednesday were familiar, as a host of analysts have questioned the connection between speculative trading or passive investment and the run-up in oil prices to a record $147 a barrel in 2008, the painful period that provoked a political impetus to take action to tame energy prices.

Energy producers have by and large lined up in opposition to the plan, fearing it could limit their ability to hedge their vast global positions. Analysts say it could also force them to curtail profitable speculative trade.

Energy market end users, such as the airlines industry, have called for more regulation of the excessive speculation that they say is responsible for volatile commodity prices.

Delta Air Lines, the world’s largest airline, said CFTC’s proposed position limits are too high.

Delta said the rapid rise and decline in energy prices in 2007 and 2008 cost it about $8 billion, including $1.7 billion in hedging losses and premiums.

“Without an overall cap on speculative interest, these limits will be ineffective in controlling excessive speculation,” wrote Richard Hirst, general counsel for Delta.

(Editing by Lisa Shumaker)

REUTERS ARTICLE

COMMENT BY JOHN DONOVAN

Royal Dutch Shell is the only major oil company objecting to the plan by the U.S. Commodity Futures Trading Commission to limit speculative positions in U.S. oil and gas futures. In view of its track record of market manipulation, including false reporting, fictitious sales, fictitious trades and manipulation of natural gas prices, the attempt to block regulation is predicable by the predatory oil giant which has no shame.

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