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t
he fight against speculation has been long and arduous. The initial rounds were
spent persuading regulators and legislators that undue speculation in the com-
modities markets was a reality. The market environment truly was opaque.
You could find academics and seasoned traders with notable credentials who
presented cases supporting each side of the argument. Further, while the dra-
matic changes in market behavior seemed linked to significant market deregulation in
2000, there is always the concern that coincidence doesn't equal causation.
For me, someone who has been covering the issue since the beginning, the coincidence
was hard to ignore. Furthermore, people far more knowledgeable than I, such as the late
analyst Peter Beutel, could no longer figure out what was happening in the markets. While
it was perhaps plausible to explain the run-up in prices and the increased volatility prior
to 2008 on a range of international supply and demand concerns, the rapid fall that fol-
lowed the economic collapse was much harder to justify.
As a result, industry associations and this magazine have supported the reregulation
of the commodities market to the extent possible under the Dodd-Frank legislation
passed in 2010. That is not to say that Dodd-Frank is a perfect cure for the financial ills
that slammed our economy in 2008. In fact, as a whole there is a lot you can be skeptical
about with that law. However, the work done on derivatives that our industry played a
key role in developing seems clear and appropriate, even to a libertarian-leaning person
such as myself. The term "weapon of mass destruction" gets thrown around lightly, but
I believe it was appropriate when applied to derivatives – housing as well as energy.
As my article on page 16 notes, the long fight is now entering its final rounds. A lot
was won, some of that was subsequently lost and there are a few key elements that still
need to be cemented in place. There is also some degree of weariness among those who
have fought the fight the longest and hardest, and honest concerns over how best to apply
what are limited resources. So many things need to be addressed in this industry and they
all require time and money.
What has been accomplished so far? Volatility has declined, and I believe you can
reasonably claim some of that comes from our successes as an industry in reducing the
financial incentives behind creating volatility in the markets. Prices seem to have seen
some stability, but we are all waiting for them to drop much further than they are today.
Of course, we are also producing a lot more domestic oil. So, when that day arrives and
prices adjust, it may not be as clear-cut about exactly what was the primary driver.
My personal belief is that the industry made the right call. And as an industry we need
to make sure we finish out as successfully as possible on such remaining issues as setting
effective position limits, and making sure the CFTC has the funding it needs to give the
regulations some teeth.
l F o n
Keith Reid
8 JunE 2014 | FuEL OIL nEWS | www.fueloilnews.com
Membership applied
for January 2014
The Final Rounds in the
Speculation Fight
