Daily Archives: May 24, 2010

Kate Mackenzie

The CFTC is in an interesting position now that the Dodd bill looks set to become law.  The CFTC — or some of its commissioners, at least — is already considering imposing position limits on  energy futures positions held by financial market players, much to the chagrin of some energy traders.

The Dodd Bill would likely cement the rights of the CFTC to impose such limits, and add a lot more besides imposing regulations on over-the-counter commodities trades. As FT Alphaville wrote in March:

Key proposals on that latter subject include obligatory clearing submissions for swap dealers, depository registration as well as minimum capital and margining requirements.

Swap trades that go uncleared, meanwhile, would under the proposed bill be hit with “substantially higher” capital requirements to offset the greater risk associated.

And who would be responsible for running this? The CFTC.

One CFTC commissioner is not happy about it, warning that it would “overwhelm” the commission, the FT reports.

Jill Sommers, one of two Republicans out of the five CFTC commissioners, opposed putting the proposed position limits announced in January up for public consultation, arguing they would reduce market transparency. So perhaps it’s not surprising she would also be sceptical about taking on the OTC responsibility.

But she’s not the only one arguing the agency would need considerably more heft to administer the OTC rules; chairman Gary Gensler (who supported the position limits) has also made the case, the FT reports:

Handling its new role would require 119 new employees and a $45m budget increase to $261m, Mr Gensler told Congress last month.

Scott O’Malia, the other Republican commissioner, last week said the agency still gets account information by fax.

Meanwhile the news came at an odd time for energy markets; with front month crude oil prices falling

Philip Verleger, an energy economist who argues that passive index investors have been a good thing for energy markets — encouraging storage and thereby reducing volatility — says the price declines “could not have come at a worse time” vis a vis the reform bill’s passage in the Senate, and could lead to a decline in both open interest and storage levels. Bloomberg reports that the CFTC’s weekly data for the week to May 18 showed the biggest decline in financial investors for the next eight months.

Related links:

What does the Dodd bill mean for commodities? FT Alphaville
Speculation evaluation - FT Energy Source
Digging deeper into the CFTC’s position limits - FT Alphaville

Kate Mackenzie

Comments by US secretary of the interior Ken Salazar that the administration would “push [BP] out of the way” if necessary have been widely reported as a threat to BP.

Such a statement makes some sense — coming amid accusations that its response has been inadequate, the administration naturally wants to be seen as having its ‘boot on BP’s throat,’ to quote from an earlier Salazar comment.

But how realistic is the threat to “push them out of the way”?

Kate Mackenzie

The FT reports that oil output in Iran, one of the world’s top producers and holder of its third-biggest reserves, is on the decline, with capacity falling from about 4.2m barrels/day in 2005 to about 3.8m or 3.9m b/d today:

“Oil production capacity has dropped by probably about 300,000-400,000 bpd,” said a former senior official in Iran’s government. His figures were consistent with those of a western oil official. The period over which the decline has taken place is uncertain. Oil industry experts, however, say it has come about since Mahmoud Ahmadi-Nejad became president in 2005.

In fact output was only 3.53m b/d a year ago, according to Iranian central bank figures — well below its capacity. Iran is a member of Opec, which at the time saw unusually high compliance with its production quotas, but it is not known for being among the more compliant members.

The reduction is not necessarily a direct effect of sanctions reducing export demand, however, but a longer-term decline due to lack of investment.

Kate Mackenzie

- Eyewitnesses on the rig explosion

- Lessons from the Gulf oil spill

- BP still using dispersant

- What caused the Deepwater Horizon disaster?

- The intractibility of the built environment

Kate Mackenzie

- Obama launches commission into oil spill – Reuters

- Officials visit the Gulf as frustration on spills spreads - NY Times

- US was not ready for major oil spill - WSJ

- Sanctions hit Iranian oil production – FT

- Sinochem buys stake in Brazil oil field - FT

- Tensions escalate over North Sea access - FT

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