Senators demand limits on oil speculation

Sen. Bernie Sanders, I-Vt. introduced legislation today  that would require the Commodity Futures Trading Commission to impose strict regulations on oil speculators, who some blame for rising gasoline prices.

Sanders said if the agency failed to meet the two-week deadline outlined in his legislation, he would call for the resignation of commission chair Gary Gensler.

The legislation, if passed, would cap the amount of oil that speculators are allowed to buy and sell annually to 20 million barrels, increase the amount of money investors would have to back bets with from 6 to 12 percent and redefine investment banks as speculators rather than hedgers – investors who use the product they are buying for business.

The bill would limit speculators’ influence over the energy futures market.

The CFTC defines a speculator as any person who “does not produce or use the commodity, but risks his or her own capital trading futures in that commodity in hopes of making a profit on price changes.”

These speculators drive up energy prices by pouring billions of dollars into commodities markets, in effect, creating a demand for futures that would not naturally exist if the only people in the market were users or consumers of a product.

A similar bill has been introduced in the House.

“There is mounting evidence that the increased price of gasoline has nothing to do with supply and demand and everything to do with Wall Street speculators jacking up oil and gas prices in the energy futures market,” Sanders said.

In testimony to the Senate Finance Committee in March, Rex Tillerson, the CEO of Exxon Mobil, stopped short of blaming speculators for high oil prices but said the price of crude oil would be between $60 to $70 a barrel if based only on the laws of supply and demand.

Benchmark West Texas Intermediate crude for July delivery fell to $94.81 per barrel on the New York Mercantile Exchange Wednesday. It has traded above $100 through much of the spring.

Sen. Richard Blumenthal, D-Conn., a co-sponsor of the bill, said: “These price increases have been absolutely crushing. We need to attack these increasing prices that are the result of gaming and gambling. The CFTC should have acted five months ago.”

The Frank-Dodd Act, the financial regulatory reform law enacted last summer, requires the CFTC to restrict the amount of oil that speculators could trade on the energy futures market. The commission failed to meet the law’s Jan. 22 deadline for new regulations on oil speculators.

R. David Gary, a spokesperson for the commission, declined to comment.

The CFTC dismissed suggestions in 2008 that oil speculation was driving up market prices. In a report, the agency said it “does not support the proposition that speculative activity has systematically driven changes in oil prices.” The agency said then that the price of crude oil – over $140 a barrel at the time – was due to market supply and demand.

The agency charged several oil traders in May with allegedly manipulating prices in the crude oil market from January to April in 2008. They will face trial later this year. The companies involved in the cross-market trading scheme earned more than $50 million in unlawful profits, the commission said.

Lauren French

4 Responses

  1. John P says:

    Speculation does drive up prices. Anyone that tells you otherwise is either in the game or a dumb ass that wants desperately to think that their $2K position in USO puts them in camp with the big swingers.

    I say we squeeze these guys as hard as we can. I want to see oil tank to $50 bucks. Imagine all the floating bodies in the sewage infested swamp that is wall street. GLORIOUS!!!!

  2. Dave H. says:

    It’s simple, really.
    If you want to control $100K worth of ANY commodity, you should have to put up $100K, not $6K or $12K.

    Businesses who actually use commodities in their businesses will have no problem with this. Gamblers will.

  3. Dollar says:

    Has anyone really put any thought, into why Tillerson told the Senate Finance Committee that speculation accounted for $30 per bbl ?

    There was much talk at that time, and still remains, about taking tax breaks away from the oil industry. Does it not sound much better for Tillerson, to say that oil should really be $60 per bbl if not for speculation ??

    Of course it does.

    And that’s the same reason OPEC blames speculators, to take pressure off themselves.

    There are too many contradictions in what we hear from Tillerson et al.

    And when the IEA calls upon OPEC , once again, to increase production, then supply/demand is tight, and probably going to get much tighter.

    Politicians like Cantwell and Waxman, who represent very liberal democratic parts of the country, are going to blame speculators just to take the heat off themselves for their environmentally based obstruction of oil and gas drilling.

    Its supply/demand and the demand is coming from emerging economies in the third world and from China and India. And OPEC can not keep up.

  4. Dollar says:

    Pandering to the voting public.

    There are good reasons the CFTC has not acted, if it were that simple, it would’ve been done long ago.

    Rex Tillerson said oil should be at $70 , if it were based on pure supply/demand.

    But Rex Tillerson told the same Senate Finance Committee that he thought oil would be at $125 by the end of the year.

    Yep, that makes a lot of sense to me.