NYMEX Raises Margin Requirements for Crude

Hefty increase in margin rules from the NYMEX, effective earlier this week:

The New York Mercantile
Exchange said on Tuesday it will increase margins for its crude
oil and related futures contracts, beginning at the close of
business on Wednesday.
   

Margins for the crude oil, crude oil calendar swap, and
crude oil financial futures contracts will go up to $7,250 from
$6,500 for clearing members, to $7,975 from $7,150 for members
and to $9,788 from $8,775 for customers, NYMEX said in a
release.   

Margins for the NYMEX miNY crude oil futures contract will
rise to $3,625 from $3,250 for clearing members, to $3,988 from
$3,575 for members and to $4,894 from $4,388 for customers. Margins for the NYMEX MACI index futures contract will
increase to $1,450 from $1,300 for clearing members, to $1,595
from $1,430 for members and to $1,958 from $1,755 for
customers.

That may be one source of pressure on Crude this week . . .

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UPDATE: May 30 , 2008 11:00am

For all you folks who are Google-impaired:

 

These come from the 2008 NYMEX Press Releases.

Incidentally, this is what the Fed should have done with Stock margin requirements in 1998-99: gradually increase required capital.

>

   

   

Source:
NYMEX to raise margins for crude, related futures
Gene Ramos;
Reuters Tue May 6, 2008 10:25pm BST
http://uk.reuters.com/article/oilRpt/idUKN0651587320080506

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  1. rickrude commented on May 30

    Can anyone back up this article ??
    is this true ?? if so, are the peak oil guys like me doomed ??

    —————————————-

    U.S. Watchdog to probe oil trading.
    U.S. watchdog to probe oil trading
    SHAWN McCARTHY
    20:47 EST Thursday, May 29, 2008
    Print this article Email this article

    OTTAWA — Facing demands for greater transparency in red-hot energy markets, U.S. regulators are taking a closer look at oil-rich sovereign wealth funds to see whether the funds are trying to drive up oil prices by pouring money into energy futures.

    Bart Chilton, a commissioner with the U.S. Commodity Futures and Trading Commission (CFTC), said in an interview Thursday that he wants to ensure that state-owned funds from oil-exporting nations are not secretly manipulating markets to the detriment of U.S. consumers.

    The commission, which is under pressure from U.S. Congress to cool the speculative heat in commodity markets, announced Thursday that it will collect more information from traders and work with British regulators to bring overseas markets under scrutiny.

    It also announced that it is conducting a U.S.-wide investigation into the crude oil and related derivative markets to determine whether there was price manipulation during the unprecedented run that saw the price on the New York Mercantile Exchange climb from around $60 (U.S.) a barrel last spring to a close of $126.62 Thursday.

    In a statement, the commissioners, led by chairman Walt Lukken, said consumers and business are “significantly affected” by higher energy prices.

    “The commission is taking important steps to ensure that the U.S. energy markets function properly and operate free from manipulation and abuse.”

    Mr. Chilton has been leading the fight on the commission to gain more oversight over both domestic and foreign markets.

    In both these markets, speculators can trade “look-alike contracts” that track the Nymex and influence U.S. prices.

    Critics argue that excessive speculation has added as much as $35 to the price of a barrel of crude oil.

    In a letter to four U.S. senators sent earlier this month, Mr. Chilton warned of the possibility that foreign wealth funds could be undermining energy markets.

    “Certainly we should be cautious about any [sovereign wealth fund] investments that are motivated by inappropriate objectives of the controlling government,” he wrote.

    In a telephone interview from Washington, he said the current system makes it impossible to identify and track such investment.

    “I’m certainly interested in seeing more data on sovereign wealth funds and ensuring they’re not having some disproportionate impact on the market,” Mr. Chilton said.

    “It’s our job to look at things and see what’s going on, particularly when prices are so high and impacting residents in such a big way.”

    Saudi Arabia and the oil sheikdoms of the Persian Gulf, such as Abu Dhabi, are amassing vast funds as a result of record crude prices and are recycling those windfall profits back into Western economies through direct and indirect investments.

    Norway’s $400-billion fund, which reports its holding publicly, will soon own 1 per cent of all European equities – an indication of the growing financial clout of the world’s major oil producers.

    With oil and other commodities at record levels – and speculators being blamed for at least some of the increase – Congress has passed legislation to increase regulatory oversight.

    Congress voted recently to end the so-called “Enron exemption,” which allows electronic exchanges set up for large traders to operate without any federal regulation.

    The exemption was passed into law in December, 2000, at the behest of executives at now-defunct Enron Corp., in order to facilitate their controversial aggressive natural gas trading.

    Shane Sweet, executive director of the New England Fuel Institute, said his group, which represents heating fuel companies, has lobbied hard to get additional regulatory oversight of overheated energy markets and was encouraged by Thursday’s announcement.

    However, he is not expecting an immediate or dramatic decline in prices.

    “This is not the cure for cancer. I don’t think there’s a single magic bullet that is going to restore some sense to this market,” he said.
    © Copyright The Globe and Mail

  2. blinblin commented on May 30

    Barry,

    Refer to the date on the article that you posted.

    I already think that margins were raised earlier this month.

    Please doublecheck

  3. Andy Tabbo commented on May 30

    Raising margins in the parabolically rising market would only hurt the folks who are short the market. Initiallly, raising margins would force short covering. Then, on the next puke out, it might create greater sell interest. The net effect should be increased volatility in the short run.

    -AT

  4. Douglas Watts commented on May 30

    MILLINOCKET, Maine – Record oil prices will force Katahdin Paper Co. LLC to indefinitely close its Katahdin Avenue mill and lay off all 208 workers in 60 days unless an alternative energy source is found, company officials said Thursday.

    from today’s Bangor Daily News.

  5. BG commented on May 30

    Oh my God!!!! It’s back to the Future(s) and about time I might add. If you aren’t going to use these market moderating tools when markets get frothy then you might as well get rid of them altogether.

    Kudos for making at least one baby-step back toward a pittance of sanity in the price of commodities; otherwise, BB might as well move his printing presses to the trading pits.

    It amazes me how you don’t hear anything from the CFTC or any other regulatory body. The silence is deafening!!! They don’t even pretend to police the markets any more. They’re free-markets alright,… good-ole buddy buddy.

  6. DL commented on May 30

    I’m no expert on the mechanics of futures trading, but it seems unlikely that raising margin requirements will cause a drop in crude (other than for a few days). For one thing, there are other futures markets besides those in the U.S. And for another, many money managers will find a way to borrow money from somewhere. Just look at all the leverage that some hedge fund managers used to buy subprime mortgage-backed securities. No futures market there. If the speculators are determined to buy crude futures, they’ll find a way. Furthermore, there’s nothing to stop hording on the part of those who buy (e.g., the refiners) or sell (e.g., Canadian companies) the physical commodity, if they are so inclined.

  7. DL commented on May 30

    “Incidentally, this is what the Fed should have done with Stock margin requirements in 1998-99: gradually increase required capital”

    How effective would this have been? Wouldn’t the hedge fund managers be able to borrow money from somewhere else? As for individual investors buying tech stocks on margin, an increase in margin requirements might have led some of them to buy Nasdaq 100 futures. So advocates of higher margin requirements on stocks would presumably then want it to apply to futures as well. Then there would have been the question of whether to regulate the sale of call options on stocks.
    My take is that government regulators cannot change investor psychology by trying to impose limits on what people can buy and sell.

  8. sham waghmare commented on Jun 1

    this is all bout the morden politics blended with big business warhouses playing dirty games with the common public just like they did(bankers like morgan stanly,meryl linch..etc) in 1927 to ock some profit which wud sothen some of they housing market losses this is my point of viwew
    bt this is a big mess and everybody in the market should be very much catious bout it

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