Farm Bill and Oil Prices

After being up over $2 in the morning, oil has reversed course and is trading sharply lower (over $5 from the high) in early afternoon trading. This may in part be related to the Farm Bill that was passed earlier by the US Senate by a vote of 85 to 15. As a result of the strong support for the bill, even if President Bush dusts off his veto pen, the Senate will have the necessary 67 votes to override the veto.

So why is the Farm Bill impacting oil prices? One of the amendments to the Bill is called the "CFTC Reauthorization Act of 2008," which will put "all significant energy trades on electronic platforms within the regulatory confines of the Commodity Futures Trading Commission, and will impose limits on the size of traders' positions to prevent excessive speculation" (quote from the WSJ).

Presently, not all US exchanges are subject to the rules of the CFTC (Intercontinental Exchange is one of the larger examples), and as a result, there are some who claim that speculators are using these non-regulated exchanges to run up the price of oil. These same people claim that the CFTC Reauthorization Act of 2008 will put a stop to this and cause oil prices to trade down to more realistic levels.

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Comments

[EnergyFinan...:]

Interesting. If you'd like to learn more about how policy developments affect the energy market, you should attend the Renewable Energy Finance Forum-Wall Street, held June 18-19 in New York City. One of the event sessions will feature representatives from the Institute for Sustainable Energy Policies, New Energy Finance, the Stella Group, and Lazard Freres & Co in a discussion about the economic and political factors fueling (or constraining) growth in the renewable energy sector. They will also examine the world energy trends, recent policy developments, and economic indicators that affect investment decisions.

For more information, visit www.REFFWallStreet.com.

2008 May 15 04:10 PM

[TA:]

I'll believe it when I see it - having the power and actually cracking down on the speculators are two different things

2008 May 15 05:19 PM

[bearfund:]

Fewer speculators = more volatility in prices paid. That $200 plane ticket you bought yesterday would cost $300 without speculators because the airline you bought it from wouldn't know what it would pay for the fuel to fly you. I hope the CFTC does "crack down" on speculators. You won't like it. If you want lower oil prices, USE LESS OIL.

2008 May 15 11:01 PM

[bearfund:]

PS, If you think the speculators are the problem, and I certainly don't believe that they are, you should ask yourself where they're getting all that money to speculate with. Maybe you oughtta tell your buddy Bernanke to shut off the printing presses for a while. I don't trade on margin but if I did I'm pretty sure I'd be a lot less gung ho about taking on giant positions if they cost me 15% to maintain. But of course we can't raise interest rates because you needed that plasma TV and the SUV you can't afford to fill up, and how would you pay your credit card bills if interest rates rose?! Oh dear. Silly you. What a pickle you're in, America. I'd pity you, but you did it all to yourselves, and pretended to enjoy it the whole time.

2008 May 15 11:07 PM

[CLH:]

The gov cant make things better but only worst. The billionare farmers dont need tax money and the spectulators are not a problem. The problems are caused by the retarded congress.

2008 May 16 07:03 AM

[cdcaddy:]

CHL - you're right - just look at the rest of the farm bill that's going to pass... our politicians are screwing us over and over and we're not stopping them... what's wrong with us that we'll put up with this...
AND oil speculators are bullish because they know one thing - the days of cheap oil are over! AND when was the last time a government idea or regulation ever really solved anything???

2008 May 16 12:40 PM

[jjason:]

If a cartel, a monopoly, a hoarder and a speculator were able to go into the farming business and completely control prices, we would all starve.

OPEC, Big Oil and the speculators have a big effect on pushing up the price of oil, gasoline and other products.

I am happy about this bill and I hope it is enforced. In fact, I would go further and make it illegal to allow speculators to buy any futures contracts.

It is terrible when we must deal with foreign governments who control oil.

But I do agree that Americans should learn how to conserve energy.

And I am doing it. I walk a lot more, I didn't buy home heating oil at $3.999 a gallon (my oil tank is empty), I drive less (I am retired), and I am going solar this year.

Screw OPEC, big oil and speculators. I hope you speculators lose lots of money.

2008 May 18 08:26 AM