Two members of Congress urged the US Commodity Futures Trading Commission to establish and enforce position limits for all energy commodities as opening witnesses at the first of three CFTC hearings on the matter. US Sen. Bernard Sanders (I- Vt.), who questioned CFTC Chairman Gary G. Gensler's commitment to regulate aggressively as the Senate considered Gensler's nomination, began by conceding that Gensler's actions since taking the CFTC's helm have been impressive. "But they will all be for naught unless they are followed by aggressive actions by the CFTC to prevent excessive speculation in oil and gas trading," Sanders warned.

US Rep. Bart Stupak (D-Mich.), chairman of the House Energy and Commerce Committee's Oversight and Investigations Committee, concurred with Sanders, stating, "A number of reports, market experts, and regulators agree that reform of the derivates market is necessary. Physical hedging, long used to provide liquidity, transparency, and set market prices, is no longer possible due to the manipulation action of financial traders."

Other witnesses warned that adopting regulations that are too strict could damage markets. "We have not seen empirical evidence that index funds and speculators distort prices, as has been widely alleged, nor is there any proof that putting position limits on these market participants will have any positive effect," said Craig Donohue, chief executive of CME Group, the parent company of the New York Mercantile Exchange. "We are deeply concerned that inappropriate regulation of these markets will cause participants to move to dark pools and other unregulated markets, causing irrevocable harm to the entire US economy."

Ben Hirst, senior vice-president and general counsel for Delta Airlines, testified on behalf of the Air Transport Association of America. He said, "The objective should be to allow sufficient speculation to provide sufficient liquidity to enable the market to function efficiently, and no more. While it may not be possible to determine this limit with scientific precision, a reasonable surrogate might be the level of speculative activity on regulated exchanges 10 or more years ago, before the recent explosion of speculation in commodities."

Clear skies and storms

In his opening statement which began the hearing, Gensler said he thought CFTC should seriously consider setting position limits in energy markets. "As a regulator, we have to ensure for market integrity both when the skies are clear and when there are storms on the horizon.