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The Commodity Futures Trading Commission is preparing to release new oil speculation rules that would limit the number of positions hedge funds and other speculators can open on oil and other commodities, Bloomberg has reported, citing unnamed sources in the know.
However, the new rules could end up benefiting traders, according to the Bloomberg sources, as they would include higher maximum thresholds for commodity bets for some commodity contracts that are physically settled. The reason, the source said, was that the CFTC has based the new rules on data about deliverable supplies of various commodities, and that data suggests that the amount of these deliverable supplies is higher than earlier estimations suggested.
The need for tougher regulation on commodity speculation was one of the consequences of the 2008 financial crisis. Over the last ten years, however, the CFTC has met with strong opposition from powerful stakeholders in the commodity sphere, including the energy industry, among others. Now, however, this opposition could quieten as the rules would favor large speculators, according to the Bloomberg sources.
Currently, the CFTC has position limits on nine agricultural commodity contracts. Bourses, for their part, impose their own limits on energy and precious metals futures. With the new rules, the Bloomberg source said, the CFTC position limits are likely to be higher than those imposed by exchanges and exchanges might end up having to relax their limits in response to the official ones.
All in all, according to the sources, it would be better for stakeholders in the commodity trading area if the new rules are approved now rather than after the elections in November when the CFTC could see a change of management. Democrats, the logic goes, would be a lot stricter than Republicans in setting futures speculation limits, so it is in the interest of those opposing any changes so far to play along with the CFTC.
The commission is voting on the new rules on Thursday.
By Irina Slav for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.