The futures contracts are supposed to reduce price volatility. But speculators use them to bet on market prices, and critics say this magnifies price swings. Regulators, they maintain, have long let speculation in energy markets inflict financial pain, triggering wild price swings, hurting gasoline wholesalers, damaging airlines and squeezing consumers at the gas pump and airline ticket counter.
By law, the CFTC sets limits on the amount of futures contracts in agricultural products like wheat, corn and soybeans that can be held by each market participant to protect the market against manipulation. But for energy commodities — crude oil, heating oil, natural gas, gasoline and other energy products — it is the futures exchanges themselves that set the position limits.
That divergence has prompted the examination by the CFTC of whether it should step in.
Commissioner Jill Sommers said the agency should carefully approach such intervention in the market. "It's clear to me that the unintended consequences can be significant," she said.
But Chilton warned that speculative activity left unchecked "could have the same dangerous consequences."
Experts and economists are divided on whether speculative trading in the futures markets fans price volatility. Part of the confusion is that "hot" speculative money flows into energy commodities in numerous ways. The CFTC doesn't track all of them, so it's hard to quantify the impact of speculation.
The agency doesn't, for example, keep records of the speculative side bets that traders make. Nor does it monitor markets that include over-the-counter swaps — those that aren't traded on exchanges — by pension funds and other investors.
The Bush administration generally opposed tighter regulation in the financial industry. Among hedge funds and Wall Street banks that invest in and manage billions in commodities trading, the shift to a Democratic White House and a CFTC chairman appointed by President Obama has raised fears of tighter regulation.