Limits on Energy Futures Markets Could Make Energy Prices More Volatile
As the CFTC evaluates imposing position limits on commodity tracking funds and higher margin requirements on over-the-counter energy trades, some wonder whether the maligned commodities market may in fact be protecting stakeholders from other sorts of price volatility.

A recent report in the Wall Street Journal suggested that if limits are imposed, demand for energy futures will fall, which could result in declining forward oil prices. This could result in the liquidation of oil currently being held in reserve for future profit.

If this happens, a smaller reserve oil inventory would give OPEC increased sway over the market—ultimately leading, once again, to price volatility.

Effects of these limits could also be felt in the natural gas market, as the independent producers responsible for the U.S.’s current natural gas surplus are dependent upon debt financing. A liquid futures market is critical to offsetting the commodity price risk for the companies and the banks financing them, argues the report.

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September 2009 News Team
Publisher: Chuck Meyer
Editor: John Rozsa