Obama proposes steps to boost oversight of oil markets
By Steven Mufson,
President Obama proposed measures Tuesday to step up oversight of energy markets and boost by tenfold the penalties for market manipulation, in an effort to blunt political pressure over the 20 percent increase in gasoline prices since the beginning of the year.
The new measures would, with congressional approval, provide an additional $52 million to the Commodity Futures Trading Commission, boost civil and criminal penalties from $1 million per violation to $10 million a day for violations and give the CFTC greater power to set margin requirements that would force traders to provide more cash and reduce leverage when buying contracts.
“We can’t afford a situation where some speculators can reap millions while millions of ordinary Americans get the short end of the stick,” Obama said, but he added that none of the steps would “bring gas prices down overnight.”
Republicans have made high gasoline prices one of the centerpieces of this election year, blaming the president’s policies for rising costs at the pump and calling for more domestic drilling on federal lands and waters.
“While the president is out talking about tax hikes, Republicans are focused on jobs and high gas prices,” House Speaker John A. Boehner (R-Ohio) said Tuesday.
“How Many Times Can Obama Feign Outrage About Oil Speculation?” said the headline on a news release Tuesday morning from the Republican National Committee, which noted that the president expressed concern about oil speculators in 2008, 2009 and 2011.
A senior administration official said the president wants to increase the number of “cops on the beat” to stop illegal speculation and market manipulation. Obama said CFTC Chairman Gary Gensler had compared the lack of enforcement resources to a situation in which the National Football League quadrupled the number of teams but did not hire more referees.
But neither Obama nor his aides pointed to any examples of such illegal activity or to any evidence that oil speculators had, in fact, been responsible for raising prices recently. The senior official said that oil prices have been rising mainly because of growing global demand and political uncertainty in the Persian Gulf. Obama cited “global trends” in his announcement.
Lawmakers on both sides of the political divide have alleged that “speculation” is partly responsible for the jump in oil prices over the past year, but they have not offered any examples, either. Many economists argue that a large number of traders improves market efficiency, but oil experts say that investors or speculators can speed up or magnify price movements for limited periods of time.
“Wall Street speculators have turned our energy commodities markets into a crude oil casino that leaves American consumers paying more and more at the gas pump,” said Rep. Edward J. Markey (Mass.), the ranking Democrat on the House Natural Resources Committee.
Publicly available data from the CFTC show that investors and traders known as “large speculators” are holding record positions in gasoline futures, with all-time highs in what are known as “long” positions — which pay off if prices go even higher.
“Speculation isn’t illegal,” said Bart Chilton, a CFTC commissioner. “What has been so obvious to many of us since 2008 is that there is excessive speculation where traders control too much of a market and can push prices around. Consumers are tired of this and are asking why regulators are letting speculators make a meal out of them at the pump.”
The administration said it wants to improve the information technology at the CFTC to make sure it has equipment as sophisticated as that used by traders.
The administration has taken steps to prevent traders from using overseas markets that are less transparent than U.S. exchanges. The Dodd-Frank financial overhaul law also attempts to limit the trading of commodities by firms that do not process, refine or sell those commodities.
The current average price of regular gasoline is $3.90 a gallon.
“High gas prices mean a rough ride for a lot of families,” Obama said, adding that “when gas prices go up, it’s like an additional tax that comes right out of your pocket.”
But he also used his Rose Garden statement Tuesday to swat at GOP arguments that oil prices would be lower if his administration had allowed more drilling.
“What they don’t say is that we are drilling more for oil,” Obama said. During his administration, he said, the industry had added enough oil and gas pipelines “to circle the Earth and then some.”
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