Exchanges defend speculation amid oil price surge

BOCA RATON, Fla (Reuters) - Two top energy market operators sounded a familiar warning over renewed concerns in the oil market, arguing on Wednesday that speculators are misunderstood and often too quickly blamed for price spikes.

CME Group Inc Chief Executive Craig Donohue and IntercontinentalExchange Inc CEO Jeffrey Sprecher, at an industry conference here, redoubled their defense of speculation in energy markets, wading again into a debate that intensified as unrest in the Middle East sent prices surging.

Brent crude has climbed over $115 a barrel and U.S. crude topped $105 per barrel, prompting some to blame speculators for the run-up.

"This is a three-year-old problem and one that is likely to continue for some time given the macroeconomic issues that we face in the commodity and energy markets," Donohue said at the Futures Industry Association conference.

"Speculators obviously also are on both sides of the market. What gets lost in this debate oftentimes are the facts and empirical evidence," said Donohue, whose company runs the New York Mercantile Exchange.

Oil prices have since eased off their highs. But exchanges and others worry the run-up will embolden those calling for tough limits on the positions investors can hold in commodity markets, with the aim of preventing large players from controlling the market.

Last summer's U.S. Wall Street reform law gave the Commodity Futures Trading Commission the power to set so-called position limits to curb "excessive speculation" in oil and other commodity markets.

The agency has proposed limits for energy, metals and agricultural commodities, though it has not finalized the controversial plan.

"There's a sense that there are speculators and energy prices are up -- so that must be the cause and effect, without further analysis," said Sprecher.

"I'm an engineer and my mind just says you can't make that leap. Those people may be trying to push that price down to $80," he said.

"At the end of the day, we're all seeing more interest in commodities and hedging and the globalization of commodities that is largely driven by scarcity."

POLITICS AND PRICES

Speculators' net long positions in U.S. crude oil futures rose 2 percent to a record high in the week to March 8, according to the CFTC. It was the third straight record as prices hit their highest since September 2008.

The oil run-up in 2008 sparked the first calls for position limits, drawing U.S. lawmakers into the debate. A raft of studies by the CFTC, exchanges and others have concluded speculators were not responsible for that spike.

Gary DeWaal, general counsel at brokerage Newedge, said the latest oil price spike would certainly give position limits more credence -- and not only in energy markets. Commodities of all kinds have been volatile this year.

"The fact that a speculator could be benefiting from rising wheat prices at the same time that people are starving, that is just political dynamite," DeWaal said in an interview on the sidelines of the conference.

"The thought is that if all these speculators fell out of the market, somehow the price of wheat is going to fall," DeWaal said.

"The problem is, it ain't going to happen," he said. "What's going to happen in fact is the opposite: the hedgers that need the markets are going to find their entry and exit made more difficult, and it will cause greater volatility in the price of basic products."

(Additional reporting by Chuck Mikolajczak in New York; editing by Sofina Mirza-Reid and Dale Hudson)