After being up over $2 in the morning, oil has reversed course and is trading sharply lower (over $5 from the high) in early afternoon trading. This may in part be related to the Farm Bill that was passed earlier by the US Senate by a vote of 85 to 15. As a result of the strong support for the bill, even if President Bush dusts off his veto pen, the Senate will have the necessary 67 votes to override the veto.
So why is the Farm Bill impacting oil prices? One of the amendments to the Bill is called the "CFTC Reauthorization Act of 2008," which will put "all significant energy trades on electronic platforms within the regulatory confines of the Commodity Futures Trading Commission, and will impose limits on the size of traders' positions to prevent excessive speculation" (WSJ). Presently, not all US exchanges are subject to the rules of the CFTC (Intercontinetal Exchange is one of the larger examples), and as a result, there are some who claim that speculators are using these non regulated exchanges to run up the price of oil. These same people claim that the CFTC Reauthorization Act of 2008 will put a stop to this and cause oil prices to trade down to more realistic levels.
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