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CFTC to join market riggers in conference on suppressing energy prices

Section: Daily Dispatches

IEA to Meet CFTC, OPEC, Banks on Curbing Speculation

By Shigeru Sato and Yuji Okada
Bloomberg News
Wednesday, January 27, 20101

TOKYO -- The International Energy Agency will meet OPEC, banks, and U.S. and U.K. regulators in Tokyo next month to discuss limiting energy-price speculation.

IEA Executive Director Nobuo Tanaka said today he has asked U.S. Commodity Futures Trading Commission Chairman Gary Gensler, officials of the U.K. Financial Services Authority, and bank executives including Lawrence Eagles, head of commodities research at JPMorgan Chase & Co., to take part. The two-day meeting will start Feb. 25.

The CFTC has proposed curtailing investments by large banks and swaps dealers in oil, natural gas, heating oil, and gasoline amid concern speculators drove crude prices to a record $147.27 a barrel in 2008. Speculative net-long positions in oil futures, or bets prices will rise, were the highest in at least 27 years in the week ended Jan. 12.

"OPEC and regulators must have come to the conclusion that a flow of big money from bloated global banks into the commodities market is responsible for big swings in prices for oil and metals," said Tetsu Emori, a chief fund manager at Astmax Co. Ltd. in Tokyo. "Like President Barack Obama, regulators may have to take decisive measures to limit investment by banks."

Obama proposed last week to limit the size of banks and prohibit them from investing in hedge funds and private equity funds as a way to reduce risk-taking and prevent a repeat of the credit crisis.

"Obama's proposal would change banks' behavior, and we should watch closely to see if it is going to affect the energy market," Tanaka said in an interview in Tokyo today. "Stable energy prices are vital to fueling sustainable economic growth in China and India in coming years."

The proposed meeting follows a roundtable in Tokyo last April, where ministers of the Organization of Petroleum Exporting Countries and 13 Asian nations agreed to look for ways to contain price volatility. OPEC unveiled a plan in January last year seeking regulations to cap speculative trading by investors who buy oil without planning to use it.

Investment in energy-sector projects is "adversely affected by oil price volatility and lower demand for oil, when long-range commitments of adequate and timely investment flows are needed to ensure future supply," Saudi Arabian Oil Minister Ali al-Naimi told the April roundtable.

Speculative long positions, or the difference between orders to buy and sell a commodity, fell 1 percent to 134,381 contracts for New York Mercantile Exchange crude futures in the week ended Jan. 19.

Next month's meeting will be hosted by the IEA, the adviser to 28 energy-consuming nations, and the state-owned Institute of Energy Economics Japan, Tanaka said.

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