US Considers Limits on Energy Trading

Yesterday’s AP wire brought with it a surprising article about a push to establish trading limits on energy futures contracts. See below:

US considers limits on Energy Trading
US regulator says limits on energy futures trading must be weighed due to hurtful price swings
By Marcy Gordon, AP Business Writer, Tuesday July 28, 2009.

I am not sure this will fly.

Unregulated energy markets are terribly efficient today.
Prior to the futures exchanges and otc markets it was far easier for a company or group of companies or OPEC to stockpile physical oil; squeezing the market and bagging the windfall. Today yes, the price can be bid up on speculation but it cuts both ways; someone's bluff can be called and/or the market produces more supply, higher mileage vehicles become vogue, and the consumer crushes demand. These non-physical markets took OPEC out of the drivers seat and have kept them out.

Since 1972 (and probably before that) every time the government, or quasi-government agency, has attempted to rescue the general public from the evil oil & gas companies (including the trading community) they have created unnatural and inefficient "rules" inconsistent with a free market economy. Example: the price controls following the 1979 second oil crisis led to unnecessary regional shortages of gasoline and a boom for oil producers; i.e. "new" oil vs "old" oil. Prices remained artificially high for a number of years. Finally  Regan decontrolled the oil & gas prices in 1986 letting the natural state of supply and demand take over dropping the price to the floor along with his critics.

If indeed limits on energy trading are set, look for it to be short-lived. New rules create new games and the trade will out fox the regulators every time.


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