Lawmakers offer new plan to curb gas, oil price volatility
Key consumer, business groups endorse their plan; if passed, oil prices could drop by one-fourth
September 22, 2011
WASHINGTON, D.C. – In the last ten years the share of the oil market controlled by investors and speculators has more than doubled.
During the same time, American drivers have seen the price of gas at the pump blast off from $1.56 per gallon to $3.65 per gallon. By bidding up oil futures, speculators also increase costs for airlines, industrial energy users and other businesses. These higher costs are passed on to consumers. And, the level of speculation in today’s energy markets greatly exceeds the historic norm.
“You’ve got to bring down the price of oil to bring down the price of gas,” U.S. Sen. Bill Nelson said today. “And to do that you’ve got to get some of the gamblers out of the oil markets.”
Nelson (D-FL) and U.S. Rep Peter Welch (D-VT) and a handful of other lawmakers late yesterday filed legislation to do just that. Their bill aims to drastically limit the ability of speculators to artificially drive up energy prices. If their bill passes, there would be first-ever limits on how much of the oil market speculators can control. Nelson was joined by Sens. Jay Rockefeller (D-WV), Bernard Sanders (I-VT) and Richard Blumenthal (D-CT) who co-sponsored the Senate version of the bill. U.S. Rep. Rosa DeLauro (D-CT) joined Welch on the House version.
Under the legislation, no single investor could hold more than 5 percent of the oil futures market thereby greatly reducing speculators ability to manipulate prices. And because more speculators have jumped into the oil flipping business, the bill caps the overall level of speculation in the market at its average over the most recent 25 years. The lawmakers say that could reduce present day levels of speculation by more than half.
The bill comes just days before the U.S. Commodity Futures Trading Commission plans to hold a key rulemaking meeting. Commission Chairman Gary Gensler has said the agency could take action soon on long-awaited final rules to curb speculation in oil and other commodities markets. Last year, Congress passed legislation directing the regulators to impose limits on the amount of speculative investment in oil, wheat, and other commodities. But they have come under fire from Nelson and others for failing to strengthen and finalize new rules first proposed in January. There has been an intense lobbying campaign by Wall Street firms seeking to kill or water down more stringent rules.
“While energy market speculation may be just another chip at the Wall Street casino, it’s ripping off consumers at a time when they can least afford it,” said Welch. “This legislation sends a clear message to profit-driven market speculators: Your days of unfettered gambling on the tab of the consumer are numbered.”
The bill already is winning support from key consumer groups. Americans for Financial Reform, a coalition of more than 250 national and state organizations that support Wall Street reforms endorsed the bill this week. The AARP, AFL-CIO, SEIU, NAACP, National Council of La Raza, AFSCME, Consumer Action, Consumer Federation of America, U.S. PIRG and Taxpayers for Common Sense are among the coalition’s members.
“The explosion in commodity speculation over the past decade has made prices for key commodities like oil and food more volatile and unpredictable than ever,” said AFR Executive Director Lisa Donner. “That’s bad for consumers who have to pay inflated prices at the gas pump and the supermarket, and it’s bad for real economy companies who produce and use commodities.
“This proposal to put common sense limits on excessive speculation in commodity markets would strengthen these markets and restore their historic role as tools for responsible risk management,” she said.
The Petroleum Marketers Association of America, which represents some 8,000 gas stations, truck stops and other businesses, Public Citizen and the Florida Consumer Action Network are also among the organizations that have endorsed the bill.
Following is a summary and copy of the legislation.
ANTI-EXCESSIVE SPECULATION ACT OF 2011 SUMMARY
The Anti-Excessive Speculation Act of 2011 makes a number of changes to ensure that prices at the pump reflect the fundamental supply and demand for oil, and not short-term price bubbles created by speculators and financial traders. More specifically, the bill:
• Clarifies, for the first time, that one of the fundamental objectives of the Commodity Exchange Act is to ensure that the commodity markets “accurately reflect the fundamental supply and demand for commodities,” and establishes the deterrence and prevention of excessive speculation as an express purpose of the Act.
• In order to end decades of legal uncertainty and ambiguity that has thwarted enforcement efforts, defines “excessive speculation” and creates legal presumptions that would give rise to a determination that excessive speculation exists.
• Establishes individual statutory speculative position limits for energy futures, options, and economically similar contracts, wherever they are traded (on-exchange or over-the-counter). The position limits would be set at 5 percent of deliverable supply in the spot month and 5 percent of open interest in the out-months. The speculative position limits would not apply to bona fide hedging transactions. No single trader could hold more than 5 percent of the oil futures market, thereby greatly reducing the risk that any trader will be able to corner, squeeze, or otherwise manipulate oil and gas prices.
• Establishes aggregate speculative position limits in energy contracts that would apply to speculators as a class of traders. The aggregate position limits would cap the overall level of speculation in the market at its historic, 25-year average. The effect would be to reduce oil speculation from about 45 percent of the total market to 20 percent of the market. The aggregate speculative position limits would not apply to bona fide hedging transactions
• Closes a loophole by requiring foreign exchanges that seek access to U.S. traders to adopt rules prohibiting excessive speculation that are comparable to the U.S. rules.
• Grants broad authority to the Commodity Futures Trading Commission to issue rules necessary to prevent persons from circumventing or evading the speculative position limits and to carry out the purpose of the Act.