Commodity Flash Crash Part Two As Senators Demand Immediate Position Limits In Crude

Tyler Durden's picture

Today is shaping up to be an identical replica of the action from last Thursday as seen on the chart below. That's two flash crashes in less than a week. Whether this is driven by another margin hike known only to the CME and its closest, or due to news from Reuters that 17 senators have written to the CFTC to immediately crack down on excessive speculation in crude oil, is unclear, and largely irrelevant. The outright campaign to stomp out any non-stock trading is in full force. The message is clear: the only place where investors can henceforth put their money in is in stocks.

And from Reuters on the latest attempt to push all commodities to zero, via Reuters

A group of 17 U.S. senators called on the Commodity Futures Trading Commission on Wednesday to immediately crack down on excessive speculation in crude oil markets by hastening planned rules to limit concentration.

In a letter to the CFTC's chairman and commissioners, the lawmakers said they wanted the agency to unveil a plan by May 23 to impose position limits in all energy futures markets, beginning with crude oil. The agency has already proposed such limits as part of the financial reform, but has not finalised them.

The senators said the recent drop in crude oil prices, which fell nearly $10 a barrel in one day last week, defy supply and demand conditions. Oil prices bounced back almost $6 a barrel on Monday, but then fell more than $5 on Wednesday. Gasoline prices slumped by more than 8 percent.

"The wild fluctuation could only be the result of rampant oil speculation, plain and simple," said Senator Ron Wyden, one of the lawmakers who wrote to the CFTC demanding action, in some of the strongest language attacking speculators since oil prices surged to a record $147 a barrel in 2008.

"The CFTC needs a plan to impose position limits on oil speculation before oil speculators drive up prices even higher just as Americans go to the pumps to fill up for Memorial Day weekend," he said.

The CFTC is weighing new rules that would slap limits on the positions of big commodity traders, capping how many futures and swaps contracts any one company can control.

The Dodd-Frank law passed last July gives the agency the power to set position limits to curb excessive speculation in 28 commodities, including energy, metals and agricultural markets, "as appropriate."

But some of the agency's own commissioners are skeptical the limits would prevent a run-up in prices, and experts and traders have long said the rules risk making markets more volatile by reducting liquidity.