2 different views on oil speculation

With oil hitting yet another record high Friday, many members of Congress are in a “ready, fire, aim” mode, as one put it recently, eager to bring gasoline prices down by curbing speculation in oil futures markets, an issue that divides UAL Corp. Chairman and CEO Glenn Tilton and CME Group Inc. Executive Chairman Terrence Duffy.

Mr. Tilton, who left a career in the oil industry to head United Airlines just before it headed into bankruptcy in 2002, was quietly making the rounds on Capitol Hill, a day after United and other airlines sent millions of e-mails to their employees and frequent fliers, asking them to contact Congress to “reform the oil markets and solve this growing problem.”

“He has been a very active participant in our processes,” Jim May, president of the Air Transport Assn., said after a press conference to announce a new lobbying coalition led by the airline industry group, called Stop Oil Speculation Now. “He’s here in town to make some visits on Capitol Hill. He believes in this cause fully.”

Meanwhile, Mr. Duffy, head of Chicago’s futures exchanges, was testifying before the House Agriculture Committee, which oversees regulation of futures trading. The panel held an unusual three-day set of hearings this week to hammer out legislation on the issue, an indication of its political urgency.

While oil isn’t traded in Chicago, Mr. Duffy is concerned about the regulatory implications for his agricultural and financial futures markets, as well as CME’s plan to buy the New York Mercantile Exchange, where most of the world’s oil futures are traded.

In his testimony, Mr. Duffy told the panel that limiting how many oil futures contracts can be held by large investors such as pension funds — the airline industry’s primary goal — would not bring oil prices down.

Large players that invest in a range of commodity futures, called index funds, tend to buy and hold their positions, he said, but it is the daily back and forth of trading based on new information that drives prices up or down.

While supporting more disclosure to gather data and study more closely what the markets are doing, Mr. Duffy urged lawmakers to drop the idea of raising margins to dampen speculation. Increasing margins would be counterproductive, driving sellers out of the market, he said, and it would shift trading overseas and to less-regulated off-exchange markets.

“While the allure of this suggestion is understandably seductive on a political level, Congress can ill afford to make a misstep in this regard,” according to Mr. Duffy’s testimony. “Congress’ credibility is at risk in adopting simplistic, ill-conceived responses that are destructive to U.S. futures markets and those who legitimately rely on those markets.”

The Stop Oil Speculation Now coalition has generated a million e-mails to Congress in the three days since its Web site went online, including 50,000 to members of the Illinois delegation as of Friday morning.

“We didn’t have any appreciation for the nerve we’d hit,” Mr. May said.