Report Seeks Boost in Energy Trade Oversight

A recent boom in undisclosed energy trading by banks and other speculators is partly to blame for today’s soaring oil and gas prices, according to Senate investigators who called Monday for greater federal regulation of such activities.

A report issued by the investigators said that energy traders should be required to divulge more information about their activities on foreign and over-the-counter electronic exchanges. The report also said that the Commodity Futures Trading Commission’s authority should be expanded and that U.S. regulators should coordinate more closely with European counterparts.

“There are tens of billions of dollars of speculative money here which is not open to public view and it ought to be,” Sen. Carl Levin (D-Mich.) said.

The report singled out increased trading on the London-based ICE Futures exchange and over-the-counter electronic exchanges as particularly problematic for U.S. regulators, who lack any oversight in those arenas -- in contrast with the “extensive” authority they have to monitor the New York Mercantile Exchange or the Chicago Mercantile Exchange.

The ICE Futures exchange is owned by Atlanta-based IntercontinentalExchange.

The report, by staff members of the Senate’s Permanent Subcommittee on Investigations, said traders “within the United States seeking to trade key U.S. energy commodities -- U.S. crude oil, gasoline and heating oil futures -- now can avoid all U.S. market oversight or reporting requirements by routing their trades through the ICE Futures exchange.”

This makes it more difficult for the commodity commission “to monitor speculative activity and to detect and prevent price manipulation,” the report said.

In prepared remarks submitted to the commission for a hearing today, ICE Futures Chairman Robert Reid said the existing system for monitoring trading “has worked very well” and that increasing the level of market oversight could create “a regulatory labyrinth where fewer market participants would care to enter.”

Britain’s Financial Services Authority, which oversees the ICE Futures exchange, already shares some trading information requested by the U.S. commodity-market regulator, which said it used this data “to assess the potential threat of manipulation.”

The increased scrutiny of energy trading comes as crude oil futures are hovering near $70 a barrel and retail gasoline prices average $2.85 a gallon nationwide.

The Senate report acknowledged that energy prices were up in part because of the rapid industrialization of China, upheaval in major energy-producing nations and hurricane-related disruptions to output in the Gulf of Mexico.

The report, however, also said that speculation by banks, hedge funds and pension funds was exacerbating the run-up in prices to the detriment of consumers.