[OIL PRICES] The Oil price profiteering to be curbed at ICE Futures Europe and New York Mercantile Exchange

Two of the world's largest energy exchanges have forced traders to deposit significantly more money when investing to curb volatility in energy markets and drive out speculators.

The exchanges and related clearing houses have found themselves at the centre of the growing storm over claims that speculators have been behind the recent rise in oil prices to record levels.

The New York Mercantile Exchange (Nymex) and ICE Futures Europe in London, the former International Petroleum Exchange, have now tripled "margin calls" for some contracts.

They hope the increased margin calls will reduce volatility and force out some of the more speculative players. Nymex has announced a threefold increase in margin calls for long-dated Brent crude futures in New York. As a result margin calls on some contracts will jump from $100 to $300 for clearing members.

On more popular contracts, such as Brent for one-month delivery, the margin call will rise by 12.5pc to $450 for clearing members.

For investors with sizeable positions, the increase could mean the difference between a profit and a loss and appears to have already forced some speculative traders to close their positions.

The move, introduced by ICE earlier in the week and followed by Nymex yesterday, has coincided with a fall in the price of oil by around $7 a barrel from last week's record high of more than $135. In London yesterday, a barrel of Brent crude for July delivery was up 88 cents at $127.77 in late trading. In New York, a barrel of sweet crude was up $1.34 at $127.96.

Rob Laughlin, senior energy broker for MF Global in London, said that, as a result of the increases, many "smaller speculators have finally taken their money and run". However, Walter Lukken, acting chairman of the US Commodities Futures Trading Commission, yesterday dismissed the idea that raising margin calls would help long- term, saying it would just force speculators to go elsewhere.

A spokesman for New York Mercantile Exchange would not explain why the margin calls had been raised, except to say that the calls are based on a formula linked to volume and volatility and are assessed on a daily basis.

The ICE in London, where the contracts are cleared by LCH. Clearnet, has also increased margin calls - for a "lot" of Brent crude, for example, the initial margin call has risen by a third to $10,000.

LCH.Clearnet said the margin call was raised because of "a change in the nature of the volatility across the oil curves".Lehman Bros' chief energy economist Edward Morse blamed the spike in oil prices on Wall Street analysts repeatedly raising their forecasts. The investment bank described the price rise as a repeat of the dotcom bubble of the late 1990s.

In a research note, entitled "Oil dotcom", Mr Morse and Lehman's fixed income and commodities research team argue that the ratcheting up of forecasts for oil is partly to blame for the recent increase.

"Fundamental changes cannot explain sudden, severe price or curve movements," wrote Mr Morse. "As in the dotcom period, when "new economy" stocks became popular, a growing number of Wall Street analysts have been repeatedly raising their forecasts as oil prices have risen."

Source: The Telegraph|By James Quinn

No comments: