Santiago, 26 April 2010

Global harmonization of rules on position limits could help curb oil price volatility, the International Energy Agency's head said on Monday. Nobuo Tanaka, executive director of the Paris-based IEA, which advises 28 industrialized nations on their energy policy, wants more clarity on how the limits, proposed in the United States, would work. "We are quite in favor that CFTC ... is refining regulation and making more information available to the market and that is certainly a good direction to follow," Tanaka told Reuters in an interview on a visit to Chile.

"Certainly we need some kind of clarification of the duration (of position limits) and harmonizing the rules around the world. So if that is the direction, it helps," he added.

OPEC members and some consumer nations have expressed concern about the role of speculators in energy markets, which some experts say exaggerates price swings beyond what supply and demand fundamentals justify.

The U.S. Commodity Futures Trading Commission has proposed applying position limits to oil and natural gas futures markets to help deter speculation and limit volatility. The proposal has faced resistance from major energy market participants, who say it is misguided and would drive away liquidity.

Quest FormTransparency

The position limit proposal stems from the spike in oil futures prices to a record of more than $147 a barrel in 2008, and many people blame an influx of hot money from funds and other financial investors.

"There's a good consensus that more transparency, more data or information about the fundamentals, stock levels, and more information about the financial market certainly helps (to curb volatility)," Tanaka said.

Energy efficiency drives by oil-consuming nations, as well as phasing out subsidies on fossil fuels in some countries, would also help ease oil price volatility, he added.

U.S. oil fell below $85 a barrel on Monday as Greece's festering debt crisis pushed the U.S. dollar up and as the oil market girded for further growth to inventories in the United States, the world's top energy consumer. U.S. crude for June delivery settled at $84.20 a barrel, down 92 cents, after settling up $1.42 on Friday.

OPEC countries said last month a price range of $70-$80 a barrel was best to spur investment in new supplies without hurting demand, but Tanaka said for consumers the question remained whether the pace of global economic recovery justified that level.

"There are plenty of uncertainties. The market is waiting to see how the economic recovery comes true," he said. "We know that in OECD countries the economic recovery is happening, but oil demand is not really growing. We call it an oil-less recovery." Tanaka said OPEC need to remain flexible in its response to demand dynamics.

"We are asking flexibility in OPEC production policy," Tanaka said. "Currently we have quite ample spare capacity, so there is plenty of space that OPEC can be flexible."

"The flexibility is in a sense already there, because they are producing more than the quota as a whole."

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