Oil Falls From Record as U.S. House Passes Speculation Measure

By Margot Habiby

June 27 (Bloomberg) -- Crude oil fell in New York, retreating from the record $140.39 a barrel reached yesterday, as the U.S. House of Representatives approved a bill aimed at curbing excessive energy-market speculation.

The bill, which passed 402-19, would require the Commodity Futures Trading Commission to consider using position limits, or constraints on the size of the stake each speculative investor can own, and raising margin requirements, the amount of money required to trade. The vote came after the record was set.

The measure is ``not likely to be bullish,'' said Tim Evans, an energy analyst for Citi Futures Perspective in New York. ``You can argue that it may not be effective, but I don't know that you can actually argue that it's bullish.''


Crude oil for August delivery fell as much as $1.03, or 0.7 percent, to $138.61 a barrel, and was at $138.99 at 9:47 a.m. in Sydney in after-hours trading on the New York Mercantile Exchange.

Yesterday, oil rose $5.09, or 3.8 percent, to $139.64 a barrel, a record settlement price, as Libya threatened to cut output, OPEC's president said prices may reach $170 by the summer and the dollar weakened. Yesterday's all-time-high intraday price surpassed the $139.89 reached June 16.

Oil futures have moved by 2 percent or more on half of the trading days this month. Prices veered 43.4 percent from the 30- day average yesterday, the highest volatility in 16 months, according to Bloomberg data. Volatility is a measure of how far the price of a commodity such as oil deviates from average closing prices over a prior period, such as 30 or 60 days.

Pre-Recess Vote

The House passed the measure just hours before recessing for a week for the July 4 Independence Day holiday, a time when members typically return home and meet with constituents. Rising retail gasoline prices, which averaged $4.07 a gallon on June 25 and reached a high of $4.08 on June 16 according to the AAA, have angered voters. Gasoline prices are up 34 percent this year.

The measure calls on the CFTC to ``curb immediately the role of excessive speculation'' in any market it oversees in which energy futures or swaps are traded.

The bill directs the CFTC to use its authority to ``eliminate excessive speculation, price distortion, sudden or unreasonable fluctuations or unwarranted changes in prices, or other unlawful activity that is causing major market disturbances that prevent the market from accurately reflecting the forces of supply and demand for energy commodities.''

Task Force

The measure needs to be passed by the Senate and signed by the president before becoming law.

The CFTC, which regulates U.S. commodity futures and options markets, said earlier this month that it formed an interagency task force to evaluate developments in commodity markets, including the role of speculators. The task force includes the Federal Reserve, the Securities and Exchange Commission, the CFTC and the U.S. Departments of Treasury, Energy and Agriculture.

The House defeated a separate measure mandating that oil companies produce energy from current leases or be disqualified from future leasing.

Brent crude oil for August settlement rose $5.50, or 4.1 percent, yesterday to settle at a record $139.83 a barrel on London's ICE Futures Europe exchange. Prices touched $140.56 earlier, the highest since trading began in 1988.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.