Indiana Grain Company, LLC

Posted: 03/12/10

By: tomgrisafi

Economist and oil analyst Philip Verleger has a dire forecast regarding proposed limits on energy trading: “Great harm to the American economy will result from these unenlightened actions.”

That’s just one of the highlights from the text of a speech Verleger will give today at the Futures Industry Association, BusinessWeek reported.

According to Verleger, the oil markets have been "functioning perfectly."

He argues that record-high inventories in oil and gas kept energy prices stable this winter even as temperatures dropped and energy demand rose, demonstrating that the free-market incentives to store oil ended up benefiting consumers.

If position limits curb the incentive to stockpile inventories, he proposes, there could be shortages during the next cold snap, sending prices spiking upwards and costing consumers as much as $20 billion.

The proposed regulations aim to prevent such a disruptive price spike; it was 2008’s soaring oil prices, when a barrel of crude topped $147, that prompted renewed efforts to curb the speculative activity that many blame for record-high prices.

Of course, there are just as many fans of the CFTCs proposals as there are critics. While Verleger worries that the CFTC will cripple energy markets, others have criticized the CFTC’s position limits for being too soft, as the limits would only affect the ten biggest position holders in the oil and gas markets.

Source: BusinessWeek

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