Cover Story: Curbs on commodity speculation

CHARLOTTE, NC (WBTV) - They influence how much you pay for everything from gas to oranges even coffee.

Now the government is cracking down on Wall Street speculators and it could mean lower prices for all of us.

This all has to do with traders who essentially are taking bets on how high prices will go.

They gained a lot of attention when oil went to record highs three years ago sending gas up to four-bucks a gallon.

Now Uncle Sam is stepping in to put curbs on how oil and other commodities find their price.

It could have wide-reaching implications.

The feeling is universal.  Nobody likes it - the price they pay at the pump.

"I think it's crazy," said one driver.

And in 2008 when it shot up sky-high, we were all fuming.

"I think it stinks," said another motorist.

2008 was the year oil peaked at $147 a barrel.  And when the government went looking for why it shot up sky high critics say they found the market was being manipulated:  Sent higher - the government says - by those who were speculating on the price of oil.

70-percent of the contracts for future oil delivery it's estimated are now bought by financial speculators - largely big investment banks and hedge funds - people who never plan to take control of the oil - just flip the contract for a quick profit.

Now Uncle Sam is seeking to reign in the speculators.

This week the Commodity Futures Trading Commission approved rules limiting big financial speculators ability to manipulate the price of oil and 27 other commodities.

Oil isn't the only commodity that can't support the fundamentals of supply and demand coffee too has been bid up - rising more than 40-percent last year, more than 50 percent through mid-summer this year.

"Speculators serve useful purposes. They may serve some purposes you don't like as well. But we have to be careful throwing the baby out with the bath water," says Dr. Peter Schwarz, an expert in the energy industry and economist at UNC Charlotte.

Schwarz fears over regulation in the commodities markets could wind up backfiring.

He points to the government clamping down on the banking industry.  Banks retaliated and now will charge customers for things that used to be free to consumers, products like debit cards.

"At this point I don't think we should carry over the banking industry lessons to the oil industry," says Schwarz.

The new rules impose a marketwide ceiling on speculative trading.

However, some complain the rules don't go far enough.

Those who trade in commodities - particularly oil - fear what can happen if speculators' wings are seriously clipped.

"If you remove that ability you can kiss energy independence in this country absolutely good bye," says oil industry expert Eric Kalamaras.

He says it'll make it more difficult for smaller oil companies - which make up about 60-percent of actual production in this country - to do business.  They won't be able to deploy billions of dollars of capital if they don't have a way of protecting that investment.

The rules the Commodity Futures Trading Commission adopted likely won't be implemented for another year.

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