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Bill introduced today: Stop Excessive Oil Speculation
Stop Excessive Oil Speculation
Share ThisMarch 21, 2012A group of senators today introduced a bill to make federal regulators invoke emergency powers to rein in speculators responsible for rapidly-rising gasoline prices. The legislation would set a 14-day deadline for the Commodity Futures Trading Commission to implement rules to stop excessive speculation by Wall Street traders in oil futures markets. The bill by Sen. Bernie Sanders (I-Vt.) is cosponsored by Sens. Richard Blumenthal (D-Conn.), Sherrod Brown (D-Ohio), Ben Cardin (D-Md.), Al Franken (D-Minn.), Amy Klobuchar (D-Minn.) and Bill Nelson (D-Fla.).The measure was prompted by gasoline prices that are nearing $4 a gallon and the commission's refusal to obey a Wall Street reform law that required trading limits to be in place by Jan. 17, 2011."Millions of American consumers are hurting as a result of excessive speculation on the oil futures market and the future of our economy hangs in the balance. The time to act is now," Sanders said at a news conference in the Capitol."Oil supply is up and demand is down so there is no logical reason why gas prices continue to soar," added Cardin. "We need to take decisive action now to stop the speculators who are driving up prices for all of us at a time we can least afford it.""The CFTC has the power to stop this excessive speculation, but has been dragging its feet. This legislation would direct the CFTC to take immediate action to reduce unnecessary speculation and give families some relief at the pump," Klobuchar said."To combat excessive gas prices we need a crackdown on out-of-control speculation and gambling in oil markets," Blumenthal said. "This agency-- inactive for too long-- must be compelled to act, stopping manipulation and abuses that cost consumers and endanger our fragile economic recovery. ""In Minnesota gas prices are averaging nearly $3.74 a gallon for regular and there's plenty of agreement that speculators are driving up the price-accounting for about 56 cents extra per gallon," said Sen. Franken. "The Commodities Futures Trading Commission needs to stop dragging its feet and set position limits on speculators like it was mandated to do in the Wall Street Reform law. The legislation we are introducing today would force the Commission to take action which would help Minnesotans at the pump. It's the right thing to do."The recent surge in crude oil prices is widely attributed to speculators who control more than 80 percent of the energy futures market, a figure that has more than doubled over the past decade.Higher oil prices have in turn pushed up the price of gasoline, which stood at a national average of $3.84 per gallon on Tuesday. Supplies are greater today than three years ago, when the national average price for a gallon of gasoline was just $1.94. The demand for oil in the U.S. is lower today than it was in April of 1997. There is broad consensus that speculators are to blame. Exxon Mobil, the American Trucking Association, Delta Airlines, the Petroleum Marketers Association of America and the Federal Reserve Bank of St. Louis all say excessive oil speculation significantly increases oil and gasoline prices. Citing a recent report from the investment bank Goldman Sachs, a Feb. 27, 2012, article in Forbes said excessive oil speculation adds $.56 to the price of a gallon of gas.The legislation calling for emergency action is identical to bipartisan legislation that overwhelmingly passed the House of Representatives by a vote of 402-19 during a similar crisis in 2008. http://www.sanders.senate.gov/newsroom/news/?id=4CA97ACF-23FB-4D77-9D57-A8469DF0EC17
Share ThisMarch 21, 2012A group of senators today introduced a bill to make federal regulators invoke emergency powers to rein in speculators responsible for rapidly-rising gasoline prices. The legislation would set a 14-day deadline for the Commodity Futures Trading Commission to implement rules to stop excessive speculation by Wall Street traders in oil futures markets. The bill by Sen. Bernie Sanders (I-Vt.) is cosponsored by Sens. Richard Blumenthal (D-Conn.), Sherrod Brown (D-Ohio), Ben Cardin (D-Md.), Al Franken (D-Minn.), Amy Klobuchar (D-Minn.) and Bill Nelson (D-Fla.).The measure was prompted by gasoline prices that are nearing $4 a gallon and the commission's refusal to obey a Wall Street reform law that required trading limits to be in place by Jan. 17, 2011."Millions of American consumers are hurting as a result of excessive speculation on the oil futures market and the future of our economy hangs in the balance. The time to act is now," Sanders said at a news conference in the Capitol."Oil supply is up and demand is down so there is no logical reason why gas prices continue to soar," added Cardin. "We need to take decisive action now to stop the speculators who are driving up prices for all of us at a time we can least afford it.""The CFTC has the power to stop this excessive speculation, but has been dragging its feet. This legislation would direct the CFTC to take immediate action to reduce unnecessary speculation and give families some relief at the pump," Klobuchar said."To combat excessive gas prices we need a crackdown on out-of-control speculation and gambling in oil markets," Blumenthal said. "This agency-- inactive for too long-- must be compelled to act, stopping manipulation and abuses that cost consumers and endanger our fragile economic recovery. ""In Minnesota gas prices are averaging nearly $3.74 a gallon for regular and there's plenty of agreement that speculators are driving up the price-accounting for about 56 cents extra per gallon," said Sen. Franken. "The Commodities Futures Trading Commission needs to stop dragging its feet and set position limits on speculators like it was mandated to do in the Wall Street Reform law. The legislation we are introducing today would force the Commission to take action which would help Minnesotans at the pump. It's the right thing to do."The recent surge in crude oil prices is widely attributed to speculators who control more than 80 percent of the energy futures market, a figure that has more than doubled over the past decade.Higher oil prices have in turn pushed up the price of gasoline, which stood at a national average of $3.84 per gallon on Tuesday. Supplies are greater today than three years ago, when the national average price for a gallon of gasoline was just $1.94. The demand for oil in the U.S. is lower today than it was in April of 1997. There is broad consensus that speculators are to blame. Exxon Mobil, the American Trucking Association, Delta Airlines, the Petroleum Marketers Association of America and the Federal Reserve Bank of St. Louis all say excessive oil speculation significantly increases oil and gasoline prices. Citing a recent report from the investment bank Goldman Sachs, a Feb. 27, 2012, article in Forbes said excessive oil speculation adds $.56 to the price of a gallon of gas.The legislation calling for emergency action is identical to bipartisan legislation that overwhelmingly passed the House of Representatives by a vote of 402-19 during a similar crisis in 2008. http://www.sanders.senate.gov/newsroom/news/?id=4CA97ACF-23FB-4D77-9D57-A8469DF0EC17
Re: Bill introduced today: Stop Excessive Oil Speculation
Forbes just ran a piece a couple weeks ago that speculating adds $23 per barrel to the price of crude.
http://www.forbes.com/sites/robertlenzner/2012/02/27/speculation-in-crude-oil-adds-23-39-to-the-price-per-barrel/
I wonder how they will define 'excessive' since that seems like a vague description. Also part of trading in a market is speculation, so I don't understand how limits on speculation work. There is speculation because of the perceived risk to supply and demand changes--how exactly do you limit speculating on that? It also seems that you would have to put the same limits on speculating the future prices of other commodities - pork bellies, gold, etc.
The increase from $1.94 to $3.84 over 3 years, despite the increase in oil supplies could also be accounted for in some part to the de-valuing of the dollar, as well as changes in costs to refine the oil. Not that speculation doesn't play a role, just that it's not the whole story.
And BTW, $3.74/gal isn't that expensive. And if we keep asking and expecting cheap energy then oil and natural gas will continue being the viable option.
The (indirect) GOP rebuttal:
http://www.cnn.com/2012/03/21/opinion/oconnell-gas-price/index.html?hpt=hp_t2
Short story: Drill, baby, drill! And frack! Don't forget the fracking!
For your liberal entertainment:
http://ianmcgibboney.blogspot.com/2012/03/gastronomically-stupid.html
After doing some further looking, it appears there are already limits on excessive speculation in commodities. It sounds like the limits are put on how many futures any one entitity or person can hold, what the spread prices can be, and the timing of sale/purchase. I vaguely remember this from business school and discussion on stock market trading. It can definitely be damaging to commerce to have significant swings due to speculation, as well as overpricing and I support the limits for those reasons.
Again, though, the way economics typically work is that people are driven by price. Why give up cheap oil and natural gas for a more expensive alternative? High costs of one product drive innovation for new products or a way to produce a product cheaper. Eventually the cost of the alternative has to be competitive or we will continue to use oil and natural gas. And continuing to focus on lower gasoline prices doesn't seem to be driving us toward any alternatives to meet our energy needs.
I seem to remember that basically any regulations that were in place were made toothless when the Clinton administration signed the Commodity Futures Modernization Act - it basically deregulated the entire industry.
http://en.wikipedia.org/wiki/Commodity_Futures_Modernization_Act_of_2000#Controversies
http://topics.nytimes.com/top/reference/timestopics/organizations/c/commodity_futures_trading_commission/index.html
http://www.ips-dc.org/blog/how_wall_street_directly_contributes_to_food_shortages_in_the_middle_east_and_around_the_world
http://www.theecologist.org/News/news_analysis/1045180/how_goldman_sachs_started_the_food_speculation_frenzy.html
Yep you're right. I just finished getting through all of that too. Oh, how I wish I could remember more detail on how to wade through the stock market regulations--it feels like I'm reading a foreign language.
Yep! YOu go ahead and pay $5/gallon or more to support freedom, Sisugal. I'll take cheaper gas.
I thought of a good way to reduce speculation: make them have to take delivery of the product they buy. YOu want to buy 10,000 barrels of oil and you're speculating? Hope you have a big backyard! No futures for you!
Uhm, how do you suppose Newt plans to make gas $2/gallon by the end of Inauguration Day or whatever pipe dream he was rattling on about? Oh sorry, Dems have a monopoly on yanking away our freedoms. Must be all the media brainwashing affecting my memory.
Man, you hit the nail on the head. I feel so much less free with limits on oil speculation. Limits on my uterus? FREEDOM.
I agree with all of this.
There are definitely factors in play here aside from speculation. In addition to a devaluing of the dollar, Chinese demand is running pretty high. It's a nation of one billion people and counting, where annual growth of 9.5% is considered a slowdown.
In terms of limiting speculation, I don't see how you can. I admit to not being well-versed on this topic at all, but wouldn't OPEC be the only viable international group that has the power to do this? And yet, why would it stifle its own profits? At some point it has an interest in keeping a lid on prices, but to actually exclude entire segments of buyers would cause profits to shrink quite a bit.
I don't think the idea of requiring buyers to take delivery of their purchases is a good idea, either. That's not a free market, and I'm not using Republican code here. The idea of an international market where you can buy but you can't sell would seem to have some negative ramifications.
To the extent that people want to regulate this market further,* perhaps the best way would be to require that the buyers of oil have the ability to take delivery of what they buy. This would essentially limit the potential buyers to oil companies, but would continue to give them the right to sell what they purchase. However, this brings us back to my earlier point, which is that I don't see OPEC doing this.
As for the Commodity Futures Modernization Act, that is one of my regular citations when explaining Clinton's role in the Great Recession.
*I am not knowledgeable enough to have an opinion one way or the other on this particular topic, although if the financial crisis taught us anything, it's that having a massive number of buyers/sellers with zero stake in the underlying interests can be incredibly dangerous to the broader market.