Intervention in the energy futures markets could be the government’s next step to prevent a recurrence of last summer’s price spikes at the gas pump.
Gary Gensler, chairman of the Commodity Futures Trading Commission, said at a hearing Tuesday that he thinks “we must seriously consider setting strict position limits in the energy markets,” marking a major potential shift in government policy.
In 2000, Congress passed legislation that eliminated CFTC’s ability to prevent excessive oil and gas price swings in the commodity markets. But in the wake of $147-a-barrel crude and $4-a-gallon gasoline last year, lawmakers and executive branch officials are looking for ways to keep Wall Street speculators from driving prices back up to such record levels.
One proposal under consideration is to restore the CFTC’s authority to regulate the energy futures market to prevent fraudulent trading, notably excessive speculation.
Americans are tired “of being ripped off at the gas pump by the same Wall Street gamblers” that brought the meltdown of financial markets last fall, said Sen. Bernard Sanders, Vermont independent, who favors limits on speculative oil trading.
Some critics blame Wall Street investors for driving up oil and gas prices by betting that the price of oil will be much higher in the future. But the jury is still out on whether these speculators played a significant role in last year’s crude-oil price spike or this year’s rally in the oil markets.
The CFTC is expected to release a detailed report next month on the role of speculation in the oil market over the past 18 months.
A coalition of public interest advocates, lawmakers, the airline industry and the Chicago Mercantile Exchange have asked the commission to put a damper on the fluctuation in energy prices by preventing investors from engaging in “excessive” speculation.
The airline industry said at a commission hearing Tuesday that it strongly recommends regulation because the “current state of the oil futures market is totally unacceptable.”
“For airlines, a highly volatile oil market driven by excessive speculation creates serious problems,” said Ben Hirst, Delta Airlines senior vice president and general counsel, who also represented the Air Transportation Association at the hearing on ways to control energy speculation.
Mr. Hirst said the nation’s airlines collectively spent $16 billion more on fuel in 2008 than they did in 2007 despite a 5 percent drop in their fuel consumption. For Delta Air Lines, a $1 per barrel increase in the price of oil, annualized, increases the company’s fuel cost by $100 million.
Public Citizen, a D.C.-based public advocacy group scheduled to testify before the commission Wednesday, favors more regulation, but not price controls. The group believes fluctuations in prices for energy and other commodities are a good thing, but opposes market volatility driven by the “self-interest of banks.”
“Strong regulation doesn’t preclude price increases, but makes it more difficult for harmful speculation,” said Tyson Slocum, director of energy for the group and a member of the CTFC’s energy and environmental markets advisory committee.
Striking a balance that allows crude and gas prices to fluctuate, but not swing out of control owing to speculation, could be tricky. One reason: Investors and oil companies contend that Wall Street speculators didn’t cause energy prices to soar to record levels last year.
“No quantitative study has shown that speculation in futures markets was the cause of increased energy commodity prices in the past year,” IntercontinentalExchange Inc. Chairman and Chief Executive Officer Jeffrey Sprecher told the commission Tuesday. “Indeed, it is telling that commodities for which there is no active futures market experienced similar price increases as those for which there are active futures markets.”View Entire Story
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