Senate Says More Disclosure Required on Overseas Oil Deals

A flood of speculative cash has spurred the run-up in crude oil futures prices since 2000 and Congress should require disclosure of more data on U.S. energy contracts bought and sold on overseas exchanges, according to a congressional report released on Monday.

The report by the Senate's Permanent Subcommittee on Investigations finds that U.S. regulators lack the ability to track "futures look-alikes," over-the-counter contracts that are based on U.S. futures contracts and traded overseas.  In particular, the panel said that U.S. crude oil, gasoline and heating oil contracts traded on the Intercontinental Exchange Inc.'s (ICE) London bourse were impacting energy prices and large trades should be reported to U.S. regulators.  About 30 percent of crude oil futures for West Texas Intermediate which is the U.S. benchmark are traded on ICE Futures, the exchange's London exchange.

While traders at the New York Mercantile Exchange must keep detailed records and report large trades, the Commodity Futures Trading Commission (CFTC) in January allowed ICE to use U.S. trading terminals to buy and sell U.S. crude oil futures on its London exchange.  Because they are traded over the counter, those contracts are not subject to CFTC oversight.  U.S. traders "now can avoid all U.S. market oversight or reporting requirements by routing their trades through the ICE Futures exchange in London instead of the NYMEX in New York," the panel said in its report.

Congress should extend the CFTC's authority and require large trades originating from U.S. shores, including over-the-counter futures "look-alikes" traded on ICE Futures, to be reported to the CFTC, the panel said.  "This action is necessary to preserve the CFTC's ability to oversee energy futures markets," the report said. Legislation that would require Congress to take such steps is currently before the Senate Agriculture Committee.