As the crisp autumn air in New England gets chillier, Ken Williams braces for his busiest time of year. His Quincy, Mass.-based company, Scott Williams Inc., sells heating oil to homeowners.
In recent years, unprecedented swings in the price of oil have left Williams feeling frustrated. His customers are frustrated too, since the costs get passed along to them. The typical Boston-area household heating bill, around $750 a decade ago, is now typically $1,500 a year, Williams says.
He says he partly blames commodities futures traders, speculating for paper gains, for the volatility and steeper operating costs that his business faces.
"I really think we need to keep Wall Street players out of commodities," Williams said. "Or at least mitigate their influence."
But help may be coming.
The Commodities Futures Trading Commission will soon announce an official proposal to curb speculation through new rules called Position Limits, caps on how big a bet any given Wall Street player can make in the energy futures markets. The proposal could come in the next few weeks, several senior industry members told ABC News.
If such new rules are eventually adopted, they could either keep energy prices in check, or unintentionally drive them up, depending on whose opinion you ask. That includes both prices at the pump and prices for home heating oil.
"Limits are coming," said Phil Flynn, a widely followed energy analyst at PFG Best Research in Chicago. "The only question is how stringent they are going to be."
No formal announcement has been made yet, a CFTC spokesman said. However, CFTC Chairman Gary Gensler, speaking at a trade association luncheon in Washington, D.C., on Tuesday, made his view clear: "I believe that we should consider setting position limits to guard against excessive concentration in the energy futures markets," Gensler told a gathering of the Natural Gas Roundtable.
Gensler also has indicated publicly that if the CFTC were to propose a new rule on position limits, it would do so this fall.
Industry executives say they are bracing for the inevitable, and for the most part they are not pleased.
"This is going to dramatically change how some of the biggest Wall Street banks can participate in the energy market, which has been big source of profits," said one commodities trading firm executive who asked not to be quoted by name.
"Of course I'm against it," says Michael Martin, a Los Angeles-based futures trader who teaches a commodities investing course online through UCLA. "Speculators exist so industries such as airlines can hedge exposure to an oil price shock, and for there to be a hedging market there has to be speculators. When you tinker around with one end of the market it has a way of perverting the entire market."
Added Flynn: "The government is misdiagnosing the problem – it's like creating a thermometer that only goes to 75 degrees because people complain it's too hot."
Back in July and August, the CFTC held a series of heated hearings on the issue of possibly instituting position limits which would reduce the influence of financial entities, particularly big banks such as UBS and Goldman Sachs. In some cases, banks, via complex customized derivatives products known as index swaps, facilitate investments in commodities on behalf of long-term oriented institutional investors, including state pension funds.