Long Awaited Speculation Rules Finally Signed Off
CFTC chairman Gary Gensler has finally announced new position limits in a bid to rein in excessive speculation in commodity markets. Heating oil dealers have been fighting for the new federal regulations for eight years. (image: www.time.com)
A “David versus Goliath” battle that stretched over eight years is finally over with Federal regulators’ approval of new rules to combat excessive speculation in commodity markets.
The Commodity Futures Trading Commission (CFTC) on Tuesday voted 3 to 2 to approve long awaited “position limits” that restrict the amount of energy contracts any one trader can hold in a particular market.
The rules, which affect 28 different commodities including heating oil, crude, jet fuel, metals and agricultural products, aim to restore stability to markets and prevent violent and unpredictable price movements.
Heating oil customers have faced massive price spikes in recent years. Many commentators blame financial speculators for artificially driving up the cost of heating oil, crude and gasoline.
But heating oil dealers warn the new rules will not on their own restore price predictability. “Affordable consumer energy” also required sensible pro-American energy policy, tax relief for petroleum marketers, and new energy efficiency technologies, the New England Fuel Institute said.
“We fought nearly a decade-long David-versus-Goliath battle to get this far,” NEFI president Michael Trunzo said. “You could call this a strategic victory.”
The CFTC’s new rules mean a single trader can hold no more than 25 percent of a market’s estimated supply to prevent individuals taking control of huge stakes of any one commodity and manipulating prices, marketwatch.com reported. The new restrictions are expected to affect about 85 energy traders.
Bona fide hedgers, like oil dealers who buy future contracts as insurance against sudden changes in price, are exempt from the new rules.
Position limits were mandated under last year’s Dodd-Frank financial reform act in response to the financial crisis of 2008. The rules were meant to have been implemented nine months ago but were delayed by fierce opposition from Republicans and financial sector opponents
“A position-limits regime in the commodity futures and swaps markets is a critical component of comprehensive regulatory reform of the [$600 trillion] derivatives markets,” CFTC chairman Gary Gensler said in announcing the new regulations.
As expected, the decision was criticized as over-reaching by Republicans and too accommodating to big banks by some Democrats. Democratic commissioner Bart Chilton voted for the new rule, arguing that single trading firms had controlled large chunks of individual markets, leading to manipulation. He said he would have imposed even stricter restrictions if he had not had to compromise with other commissioners.
In a letter to Gensler, US Senator Bernie Sanders labelled the new limits “much too weak,” and said they “would have little, if any, impact on diminishing excessive speculation as required by statute,” platts.com reported.
New Anti Speculation Bill Introduced
Excessive speculation is blamed for driving up the cost of crude, gasoline and heating oil. But new legislation introduced in Congress aims to clamp down Wall Street traders and make oil prices less volatile. (image: the BBC via bbc.co.uk)
New legislation has been unveiled in Congress in a bid to crack down on unchecked speculation in oil markets and help reduce oil prices.
It comes as the Commodity Futures Trading Commission (CFTC) announces further delays in implementing long-awaited position limits that would clamp down on profiteering Wall Street traders.
Rep Peter Walch (D-Vt) has introduced a new bill that would stipulate how much oil and other energy futures any one speculator could control. Under the Anti-Excessive Speculation Act of 2011, no single speculator could hold more than 5 percent of oil market contracts, greatly reducing the ability of speculators to manipulate prices.
Many commentators blame speculators for artificially driving up the cost of crude, gasoline and heating oil, and other commodities, in a bid to make huge profits.
Walch’s bill would also cap the overall level of speculation in a market at its historic 25-year average. The bill’s sponsors say this could reduce oil speculation by up to 55 percent. Additionally, the bill would force regulators to ensure that commodity prices more closely reflect actual supply and demand.
“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. This legislation sends a clear message to profit-driven market speculators: Your days of unfettered gambling on the tab of the consumer are numbered.”
Though crude prices plummeted to a one-year low last week, heating oil prices are already high as we enter the winter heating season. The US Energy Department forecasts prices to rise further as temperatures dips and winter heating demand spikes.
The CFTC was mandated under last year’s Dodd-Frank financial reform act to draw up speculative “position limits” to rein in excessive speculation in commodity markets. Though repeatedly delayed, the rules were finally meant to have been unveiled this week. However this now looks unlikely till later this month.
Welch’s bill has already gained the support of key consumer groups, including The Americans for Financial Reform, a coalition of more than 250 national and state organizations that support Wall Street reforms. The coalition includes heating oil dealers and petroleum marketers.
The bill’s sponsors said speculation had dramatically increased energy prices. They cited a Goldman Sachs note from earlier this year which said speculation added at least $20 to the price of a barrel of oil.
Speculative Oil Trading Limits Nearing Sign-Off
Federal regulators in Washington are nearing completion on a set of rules that would reign in excessive speculation in oil markets to help reduce price volatility. (image: getfreshdaily.typepad.com)
Long-awaited rules on speculative commodity trading are now being finalized and could be voted on by federal regulators as early as next week.
The new “position limits” have been championed by heating oil dealers as a means to remove volatility from commodity markets, and make oil prices more predictable. And with prices tipped to rise again this winter for American consumers, anything that could ease the financial burden on homeowners as temperatures dip is in dire need.
The Commodity Futures Trading Commission (CFTC) has been working on new regulations to improve transparency, clamp down on market manipulation and fraud, and reign in excessive speculation by Wall Street investors.
Last year’s Dodd-Frank financial reform act empowered the commission to implement the new rules in the aftermath of the 2008 financial crisis, when oil prices spiked at an unprecedented $140 a barrel before crashing to $30.
Home heating oil prices are closely linked to those of crude and gasoline. Many commentators argue that recent price spikes were caused by speculators bidding on future oil prices and artificially driving them up.
New England Fuel Institute (NEFI) president Michael Trunzo has been campaigning for new restrictions that would limit the amount of influence any one trader could wield in a particular commodity market.
In a newsletter last week to hundreds of Northeast heating oil dealers, Trunzo said the commission was currently writing the new position limit rules, which will affect all 28 listed commodities, including crude, gasoline and heating oil.
The text of the final rule is expected to be made public sometime this month, with a vote tentatively scheduled for Thursday, September 22nd.
However, commission chair Gary Gensler last week indicated the rule could again be delayed in order to let the issue “ripen”, Trunzo said. It has already been repeatedly delayed amid fierce opposition from the banking sector.
Gensler reiterated that NEFI, the Petroleum Marketers Association of America (PMAA) and coalition allies in the Commodity Markets Oversight Coalition (CMOC) have been leading advocates for the new restrictions. Such regulations were “an essential means to bringing much needed stability and renewed confidence in the commodities markets, along with comprehensive transparency requirements, prohibitions on fraud and manipulation and limits on anti-competitive or disruptive trading practices,” he said.
We will review the Commission’s final rule in great detail once it is made public and report to our members. NEFI will not support a final rule if we believe it will not meet the Commission’s responsibility under the law to prevent market manipulation and the burdens of excessive speculation on American businesses and consumers.
HeatingOil.com promises to update readers with any developments.
CFTC to Move on New Commodity Rules
CFTC chair Gary Gensler has indicated a final decision on new "position limits" to reign in speculation in oil markets could be signed off in September. (image: russellmeansfreedom.com)
Heating oil dealers are praising a decision by federal regulators to move forward on new rules designed to tackle rampant speculation in oil markets.
Officials at the Commodity Futures Trading Commission (CFTC) have indicated that a final rule on the long-awaited speculative “position limits” is likely sometime in September, the New England Fuel Institute (NEFI) reports.
Commission chair Gary Gensler said the decision could be made as early as September 22, Bloomberg reported Monday.
Many commentators blame excessive speculation by Wall Street traders for spikes in world oil prices that saw the cost of crude, gasoline and heating oil hit 30-month highs earlier this year. Though oil prices have fallen in recent weeks, heating oil prices are tipped to spike again this winter.
The new rules were mandated in last year’s Dodd-Frank financial reform act in the aftermath of the 2008 financial crisis. They aim to improve transparency in financial markets, clamp down on fraud and market manipulation, and help prevent volatile price movements of essential commodities.
But implementation of the new rules – originally set down for January this year – has been delayed amid fierce lobbying by the financial sector while CFTC officials sought more information.
Futures oil markets have traditionally been used by oil companies, airlines and other petroleum end-users as insurance against future price changes that affect their businesses. NEFI president Michael Trunzo said position limits would help curtail excessive speculation by commodity traders who profit when oil contracts gain wildly in value.
News the commission was set to vote on the new rules was welcome news for heating oil dealers and their customers, Trunzo said.
This development should please consumers and businesses across the country. Position limits should renew certainty, stability and confidence in the commodity in a timely and comprehensive manner.
The NEFI and Petroleum Marketers Association of America are part of a coalition campaigning for the commission to strengthen its proposed rules to address rampant speculation.
The CFTC has received about 13,000 submissions, the overwhelming majority of which supported the implementation of position limits, Trunzo said. They included hundreds of letters of support from NEFI heating oil dealers warning the commission to strengthen the rules and implement them without further delays.
The coalition has just released a revised list of more than 75 studies and reports demonstrating the harmful effects of excessive speculation.
And just last week, independent Vermont Senator Bernie Sanders released secret oil trading data collected by federal officials that shed light on speculative activity by financial traders in the weeks before the 2008 financial collapse, when oil bottomed out from an all-time high of $140 a barrel to just $30. It named big investment banks, pension funds and hedge fund operators.
Oil Speculators Named in Secret Data Release
Independent senator Bernie Sanders blames speculative traders like investment banks and pension funds for artificially driving up the price of oil. (image: schema-root.org)
The release of secret oil trading data naming big investment banks and hedge funds has shed light on speculative activity just before the 2008 financial crisis.
The information was collected by federal regulators and made public Friday by Vermont independent senator Bernie Sanders. Sanders said it showed speculative traders were responsible for the 2008 spike in oil and gas prices, burlingtonfreepress.com reported. They deserved to be publicly named.
“This report clearly shows that in the summer of 2008 when gas prices spiked to more than $4 a gallon, Goldman Sachs, Morgan Stanley, and other speculators on Wall Street dominated the crude oil futures market causing tremendous damage to the entire economy,” Sanders said in a statement.
“The CFTC (Commodity Futures Trading Commission) has kept this information hidden from the American public for nearly three years. That is an outrage.”
Wall Street speculators have been blamed for artificially driving up the cost of crude, heating oil and gasoline by making massive bets on prices for huge profits, with no intention of using the oil they buy and sell.
The US Energy Information Administration predicts the price of heating oil in the Northeast this winter will be 33 percent higher than last year.
The Dodd-Frank financial reform act, passed by Congress a year ago, gave the CFTC powers to implement new rules to crack down on speculators and prevent volatile spikes in commodity prices. But the rules have been delayed amid fierce opposition from the banking sector while regulators seek more information.
Along with banks such as Morgan Stanley Group and Goldman Sachs, traders listed in Sanders’ data release include hedge fund operators and pension funds. End users like airlines and heating oil dealers, who legitimately invest in oil futures to lock in prices, were also listed.
“The American people have a right to know exactly who caused gas prices to skyrocket in 2008 and who is causing them to spike today,” Sanders said.
In his statement, Sanders called CFTC claims that it needs more data to impose speculative position limits “laughable.”
“We have a responsibility to do everything we can to lower gas prices so that they reflect the fundamentals of supply and demand and bring needed relief to the American people,” he said.
In a letter to CFTC chairman Gary Gensler, Sanders called for an emergency meeting to crack down on speculators and provide needed relief for motorists and residents in cold-weather states, like Vermont, who face sharply higher prices this winter for heating oil, opednews.com reported.
There is little doubt that the same speculators who caused gasoline and heating oil prices to unnecessarily spike in 2008 are playing the same games again in 2011. This is simply unacceptable and must not be allowed to continue.
Heating oil dealers are part of a coalition campaigning for the new rules to be implemented to help lower oil prices and provide more certainty in oil markets.
New Jersey Heating Oil Association Names New Leader
Charles Brand has been appointed president of the Fuel Merchants Association of New Jersey. The organization represents the interests of heating oil dealers and their customers. (image: dolanlaw.com)
The Fuel Merchants Association of New Jersey [FMA] has appointed a new president to represent the interests of the state’s heating oil customers and dealers.
Charles J. Brand of Sparta was elected last week for a two-year term. The association was founded in 1933 and is based in Springfield. It represents 350 petroleum marketers and industry suppliers from around the state.
They include scores of home heating oil dealers and fuel companies who supply fuel oil and oil products to thousands of residential and commercial customers, as well as gasoline stations, government agencies and commercial fleets.
The association’s members also install and service central heating and air conditions equipment, and perform energy audits under the New Jersey Clean Energy Program.
Closely aligned with the Petroleum Marketers Association of America, the New Jersey FMA plays a key role in representing the interests of its members and customers to state and federal legislators, and regulatory authorities.
One of the organizations most pressing concerns is the spiralling cost of home heating oil on the back of global oil markets.
“One of our busiest arenas these days is the energy commodity marketplace, where we are working hand-in-hand with regional and state associations to bring volatile energy prices under control,” the association’s website says.
Heating oil dealers around the country have been campaigning for federal regulators to bring in new rules which would crack down on financial speculators and help rein in prices that have led to extreme hardship for some heating oil customers.
FMA is also instrumental in promoting the industry’s point of view with related industries and works closely with real estate professionals, including home inspectors, to advance the value of oil-heated properties. Association officials also collaborate with the insurance industry to ensure that homeowners can secure affordable coverage for oil-heated homes.
“The fortunes of our industry rise and fall in direct response to government decisions, and FMA is a powerful voice for you in the state and beyond,” the organization’s website says. “We’ll be here for years to come, representing oil-heat wherever and whenever your interests are at stake.”
Heating Oil Dealers Slam Federal Regulators
CFTC chairman Gary Gensler is again under pressure to implement new rules to rein in the effects of speculation on the price of oil. (images: huffingtonpost.com)
Heating oil dealers have again hit out at federal regulators over the failure to implement new financial rules to tackle the effect of speculative traders on oil prices.
New England Fuel Institute (NEFI) president and CEO Michael Trunzo wrote to Commodity Futures Trading Commission (CFTC) boss Gary Gensler last week. He urged the commission to immediately impose long-awaited “position limits” on speculation in the energy markets. The rules were supposed to have been in force six months ago to help counter volatile spikes in the price of crude, gasoline and heating oil.
On behalf of the New England Fuel Institute (NEFI) and its member companies, we are extremely disappointed that the CFTC has failed to finalize a rule and impose limits by the January 2011 deadline.
The new rules were mandated by Congress under last year’s Dodd-Frank financial reform act in the aftermath of the 2008 financial crisis, when crude oil prices surged above $145 a barrel. But they have been repeatedly delayed as federal regulators come under huge pressure from the powerful financial sector lobby to water-down the proposed requirements.
In an article in last week’s NEFI newsletter, Trunzo says the repeated delays are unacceptable for heating oil dealers and their customers.
The CFTC was required under the law to set and impose limits by mid-January on the size of positions that can be held by speculators in the energy markets, including crude oil, gasoline and home heating oil futures, options and swaps.
Because of the delay, Trunzo argued that “unchecked speculation continues to cause hardship for all Americans” and “undermines the hedging and price discovery functions of the energy markets and threatens our economic recovery.”
Gensler appeared before the House Agriculture Committee earlier this month and said new data reporting and anti-manipulation requirements would bring competition and reduced costs to commercial end-users, while speculative position limits would help address the volatile price swings wreaking havoc on small businesses.
He hoped to have the new rules implemented by next fall. However, Trunzo said the fall deadline was too far out, putting supporters of speculation limits on edge and fearing further delay.
We urge you and your fellow Commissioners to expedite a final rule on speculative position limits and to avoid further delay of this important requirement.
A continued delay would further erode the CFTC’s mission to protect the public, Trunzo said. His comments come a week after a coalition of oil-using industries wrote to the CFTC calling for immediate implementation of derivatives market reforms.
New CFTC Market Manipulation Rules Signed Off
CFTC chair Gary Gensler has announced new regulations to help crack down on financial markets and rein in speculators. (image: wsj.com)
The Commodity Futures Trading Commission has signed off new regulations designed to crack down on fraud and cases of market manipulation.
The move has direct implication for oil markets and the price of commodities and are good news for heating oil customers and dealers.
Commissioners have voted 5-0 to approve the new regulations, which “bans manipulative and deceptive devices and contrivances that are used intentionally or recklessly,” in the $600 trillion derivatives markets, Reuters reported.
Actions that directly or indirectly influence or attempt to influence the price of a swap, commodity or future contract are outlawed under the new rules.
Up to now, the CFTC had to prove intent and that traders’ actions created artificial prices for commodities such as crude and heating oil. However, the new language gives the CFTC more expansive authority to pursue wrong-doers and will help rein in the effects of excessive speculation on Wall Street.
Earlier this year the CFTC sued two oil traders for alleged manipulation of oil markets. James Dyer of Oklahoma’s Parnon Energy and Nicholas Wildgoose of Europe-based Arcadia Energy, are accused of buying up crude in Oklahoma’s Cushing delivery depot to create a perceived shortage, driving prices up, then betting prices would fall before selling off their holdings and driving prices down.
It is the biggest market manipulation case undertaken by the CFTC. However legal experts have warned that oil speculators routinely store crude for profit and lay big bets on future price movements. Separating legitimate trading from illegal market manipulation to prove wrong-doing would be difficult for prosecutors.
The new rules, mandated under last year’s Dodd-Frank financial reform act, will make it easier for the CFTC to pursue such cases and harder for rogue traders to claim their actions were legitimate or legal. The rules will take effect next month.
Earlier this year CFTC chair Gary Gensler presented data showing nine out of 10 traders betting that oil prices would rise were financial speculators, not end users of oil like heating dealers or airlines.
The CFTC is preparing new “position limits” to help control the influence of financial traders and was about to publish historical data that would reveal who was betting on oil, helping to drive up the price of crude, heating oil and gasoline.
Heating oil dealers have welcomed the new rules as they and their customers continue to struggle with volatile world oil prices.
The vice-president of Connecticut-based Wilcox Fuel Inc. and Propane, John McCall, said Wall Street speculators were making it harder for customers to afford to heat their homes, theday.com reported.
“They (financiers) are making millions, and it’s the little old lady who’s crying because she can’t pay her oil bill who is paying their million-dollar bonuses,” McCall said.
New Study Blames Speculators for Oil Price Rise
New research has again singled out commodity speculators for artificially driving up the price of oil, causing hardship for those with limited incomes. (image: nirmanbrokingbhopal.blogspot.com)
A University of Massachusetts study blames excessive speculation in oil markets for adding 83 cents a gallon to gasoline prices. It calls on federal regulators to take action to protect consumers and businesses.
The findings by Robert Pollin and James Heintz of the university’s Political Economy Research Institute suggest an influx of billion of dollars into oil markets caused average gasoline prices to hit $3.96 a gallon in May, the Catholic News Service reported.
But if normal market forces had been in effect in May, a gallon of gasoline should only have cost $3.13, Pollin said.
“This means that the average U.S. consumer paid an 83-cent-per-gallon premium in May for their gasoline purchases due to the huge rise in the speculative futures market for oil,” the report says.
“Considering the U.S. economy as a whole, this translates into a speculation premium of over $1 billion for May alone. If the May price were to hold for a year, that would mean that the speculative premium would total $12 billion.”
The revelations have raised concerns among faith-based and public interest advocates that poor families worldwide are being worst hit because a larger share of their limited income is being spent on rising food and energy costs.
The study is the latest in a chorus of influential voices blaming Wall Street financial speculators for artificially driving up the cost of crude, heating oil and gasoline. Earlier this year investment bank Goldman Sachs told investors speculators were responsible for adding 20 percent to the price of oil.
The report found the volume of crude futures trading at the New York Mercantile Exchange was 400 percent higher in May than it was in 2001 and 60 percent higher than in 2009.
Oil prices peaked at more than $115 a barrel in late May, but have since fallen below $100 a barrel – largely on fears spiraling crude prices were hobbling the global economic recovery.
The report says provisions set out in last year’s Dodd-Frank financial reform act are designed to “diminish, eliminate, or prevent excessive speculation”. However these are yet to be implemented by the Commodity Futures Trading Commission (CFTC).
“The CFTC needs to exercise its authority to ensure that the policy tools provided by Dodd-Frank are implemented in ways that protect the interests of ordinary people and small businesses throughout the United States.”
The report’s findings will come as little surprise to heating oil dealers who have been campaigning for immediate regulation of financial markets to control oil prices.
However the CFTC, under massive pressure from the powerful financial sector, recently announced the new regulations had been pushed back by at least six months.
Heating Oil Dealers Take Stand Against Speculators
Wall Street speculators are accused of artificially inflating oil prices. A new bill seeks to force federal regulators to crack down on speculators by implementing long-awaited rules. (image: guardian.co.uk)
Heating oil dealers have thrown their support behind a new bill, which aims to curb excessive speculation in oil markets.
Independent senator Bernie Sanders, Vt, introduced the “End Excessive Oil Speculation Now Act” last week. It aims to force the Commodity Futures Trading Commission (CFTC) to introduce immediate regulations to reign in Wall Street traders who buy and sell oil contracts for profit. The new rules were mandated under last year’s Dodd-Frank financial reform act but have become mired in delays.
New England Fuel Institute president Michael Trunzo is part of a coalition that has supported Sanders’ bill. He said soaring oil prices were hitting heating oil customers and dealers alike.
“Despite the fact that it’s summer, the average price for a gallon of home heating oil is currently $3.10,” Trunzo said last week. “For the nearly 2.6 million New England homeowners who use heating oil and the 2,000 mainly small, family-owned and operated businesses that serve them, the current pricing structure is a major financial strain.”
Trunzo said the financial hardship went beyond home heating. “It relates to rising costs of gasoline, transportation and groceries as well. Retail heating oil dealers are facing strained lines of credit with banks and oil suppliers. Our members are finding it difficult to grow their businesses and keep their existing workforce employed, never mind hiring new employees.”
New England Fuel Institute president Michael Trunzo says heating oil dealers are also suffering because of soaring oil prices. (image: suny.edu)
Trunzo said his members were often accused of price gouging and it was difficult for customers to understand that oil dealers did not profit from high commodity prices.
Heating oil companies and other businesses that deal in oil products have traditionally used financial markets to “hedge” against price movements and protect themselves and their customers from financial risk, Trunzo said. But the oil markets were now dominated by financial speculators who traded oil contracts for profit with no intention of taking physical possession of the oil they bought and sold. This had driven up prices beyond what was reasonable based on current supply and demand.
Wall Street speculators now control the petroleum market and their motive is to make money with no intentions of ever taking delivery of a single barrel. Unlike my member companies, who hedge to protect their consumers from volatile prices, speculators use petroleum is an investment vehicle.
Sanders’ bill would help reign in the effect of excessive speculation while the CFTC finalized new “position limits”, which would restrict the amount of influence any one trader could exert over a particular market, Trunzo said. It would also improve transparency and “close loopholes that allow speculators the same trading status afforded to companies that actually take delivery of or use the product.”
Unfortunately, the Commodity Futures Trading Commission is delayed in implementing these protections. We are six months down the road and the CFTC tells us that we are potentially another six months away from the rulemaking. This is unacceptable, as heating oil customers cannot go through another winter of volatile pricing.
The proposed legislation would help – “at least until the CFTC can step-up to the plate, fulfill its obligations and enforce these new rules,” Trunzo said. “This bill is good for my members and it’s good for their customers.”
Oil prices have risen 25 percent in the last year, but pulled back in the last week on concerns that Greece could default on its massive debt and send the global economy back into recession. Sanders’ bill would require federal regulators to take immediate action to help control oil prices and prevent volatile price movements.
New Law Tabled Targeting Oil Speculators
Vermont Senator Bernie Sanders is proposing a new law that would force federal regulators to implement immediate rules to curb speculators and control gasoline and heating oil prices. (image: latimesblogs.latimes.com)
Independent senator Bernie Sanders, Vt, has introduced legislation designed to end excessive speculation and curb soaring gasoline and heating oil prices.
Sanders hit out yesterday at the Commodity Futures Trading Commission’s failure to implement new rules to crack down on Wall Street financial traders.
His bill will be introduced to the house by Congressman Maurice Hinchey. It would require CFTC chairman Gary Gensler to take immediate steps to prevent artificial hikes in the price of oil and ensure commodity prices are set by market fundamentals of supply and demand.
Gensler would be required to introduce speculative oil “position limits” to curb traders’ influence in markets, and double margin requirements to ensure “Wall Street investment banks back their bets with real capital.” Big investment firms like Goldman Sachs and Morgan Stanley would be classified as speculators, “instead of bona-fide hedgers,” under the bill.
“The increased cost of oil and gasoline is damaging the American economy and is causing severe economic pain to millions of people, especially in rural America, who often have to drive long distances to work,” Sanders wrote in Thursday’s Huffington Post.
“While we cannot ignore the fact that big oil companies have been gouging consumers at the pump for years and have made almost $1 trillion in profits over the past decade, 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 people nationwide feared the cost of next winter’s home heating oil. Yet the same speculative traders who caused the 2008 financial meltdown were now getting richer on the oil markets while ordinary Americans were financially penalized.
The bill is an attempt to fast track new regulations mandated last year under the Dodd-Frank financial reform act. The rules were supposed to have been implemented already but are still mired in delays amid opposition from the banking sector.
“CFTC has still not imposed those speculation limits,” Sanders wrote. “In other words, the chief regulator on oil speculation is clearly breaking the law and is not doing what it is supposed to be doing.”
Sanders said the proposed legislation had support from a diverse group, including Delta Airlines, the Gasoline and Automotive Service Dealers of America, the National Farmers Union and New England Fuel Institute, which represents hundreds of heating oil dealers.
Sanders’ legislation is backed by five other senators. It follows calls this week by French President Nicolas Sarkozy for international regulation of commodity speculators, who he compared to the Mafia.
To see video of Bernie Sanders click here
French President Compares Speculators to Mafia
French president Nicolas Sarkozy launched an attack on commodity speculators this week, calling for international regulation of commodity markets to help reign in prices for oil and raw materials. (image: thepoliticalelite.com)
The French president has hit out at commodity speculators – comparing them to the Mafia – and called for greater regulation of financial markets.
In a speech at a European Union conference on raw materials on Tuesday, Nicolas Sarkozy called for the EU to follow the United States’ lead by passing tough new financial legislation, the Wall Street Journal reported. He spoke of the “gap between the reality of physical markets and that of financial markets” and blamed “financialization” for bringing the world to the “edge of a precipice.”
In oil, the size of financial markets is currently 35 times that of the physical market.” This was “not how a market economy should function, and we need to act.
Sarkozy praised the US for trying to crack down on speculation in commodities and raw material markets, and called for similar moves by European governments.
US legislators passed the Dodd-Frank financial reform act last year in the aftermath of the 2008 global financial crisis. It mandated a swathe of new rules to regulate financial markets, avoid volatile price movements and prevent another financial collapse. One of the key facets is “position limits”, which would restrict the amount of control and one trader could wield in a particular market.
CFTC chairman Gary Gensler admits US citizens are still vulnerable following the 2008 collapse of financial markets. But his agency is working on new rules to regulate Wall Street traders, including commodity markets. (image: businessinsider.com)
However the agency charged with implementing the new rules, the Commodity Futures Trading Commission, this week agreed to push requirements out because many of the new rules are still being written. It essentially told traders they don’t need to comply with the new regulatory regime for at least six months to avoid legal confusion. The move offers temporary relief to banks, companies and investors who use derivatives markets to hedge risk or speculate for profits, the Wall Street Journal reported.
Meanwhile, gasoline and heating oil prices are near record levels on the back of soaring global oil prices, which many commentators attribute to profiteering speculators. News that the long-awaited regulations will not come into force till at least the end of the year will be a bitter pill for motorists and consumers to swallow.
CFTC chairman Gary Gensler admitted the American public were still vulnerable but stressed this week’s announcement was not an attempt to delay the new rules from being implemented.
Instead, it provides the time necessary for the commission to complete the rule-making process to implement the Dodd-Frank Act.
Gensler ramped up the war on speculators in a speech last week, promising to go after law-breaking traders and name those who have made profits from gaming markets. The CFTC is currently prosecuting two traders accused of manipulating oil markets in 2008.
In response to Sarkozi’s speech, internal markets commissioner Michel Barnier said the European Commission would propose similar position limits to the US. “A bit like the Americans, we are going to make sure you are not having a dominant operator on the market.”
Such moves are likely to face fierce opposition from European banking sector as they have here in the US.
Commodity Speculators to be Publicly Named
CFTC chairman Gary Gensler is vowing to crack down on commodity speculators in a bid to prevent volatile movements in the price of oil. (image: daylife.com)
Federal regulators are ramping up their war against speculators, preparing to publicly name traders who bet on oil markets for profits, the Miami Herald reported.
Speaking in New York this week, Commodity Futures Trading Commission (CFTC) chairman Gary Gensler renewed his attack on Wall Street traders and vowed the commission was poised to take action. He presented data showing that nine out of 10 traders betting that oil prices would rise are financial speculators, not end users of oil like heating dealers or airlines who regularly hedge against potential price increases through commodity markets.
The CFTC is preparing to implement new rules to regulate financial markets in the aftermath of the 2008 financial crisis. They include “position limits” that would restrict the influence of individual traders in a bid to prevent volatile commodity price spikes. The rules are mandated under last year’s Dodd-Frank financial reform act but have been delayed amid intense lobbying by the financial sector.
Gensler said the agency would soon move “to guard against the burdens of excessive speculation” by implementing the long-awaited rules. The CFTC was also about to publish historical data that would reveal who was betting on oil, helping to drive up the price of crude, heating oil and gasoline. The move would enhance transparency in the oil markets, he said.
Gensler cited May 31 data that showed end-users – those who physically use the oil they purchase – accounted for just 12 percent of “long” positions in Texas crude futures contracts. Long positions are bets that prices will rise. That meant 88 percent of bets on oil price increases were made by financial traders - mainly Wall Street banks and hedge funds – who had no interest in using the oil they bought and sold, the Miami Herald reported. Similar trends had been identified in other commodity markets such as wheat.
Gensler said a top priority was finalizing the position limits rule - “a tool to curb or prevent excessive speculation that may burden interstate commerce.”
Limits on how many contracts a trader could purchase in any one commodity market were removed in 2001, leading to a surge in the number of financial speculators. But Gensler vowed to crack down on cases of market manipulation.
“We will use the tools to be a more effective cop on the beat, to promote market integrity and to protect market participants.”
He also warned that Republican attempts to slash the CFTC’s budget could gut the agency just when it was needed most.
“If the agency’s funding does not grow - or worse, gets cut - we would be unable to enforce new rules” to protect the public, he said.
The Obama administration is under mounting pressure to reign in oil prices, which hit 30-month highs last month. The CFTC recently charged two oil traders with manipulating oil markets for massive profits in 2008, perhaps signaling a more hard-line approach.
Senator Bernie Sanders has criticized CFTC regulators for failing to act sooner and plans to introduce legislation forcing officials to impose position limits on speculators without further delay. Heating oil dealers are among those campaigning for the new regulations to restrict the effect of Wall Street traders on the price of oil and other commodities.
New Prosecution Filed Against Oil Speculators
Wall Street traders are blamed for artificially driving up the price of oil by betting on prices rising or falling. (image: asslive.com)
A New York derivatives trader has filed a separate prosecution against two oil speculators accused of manipulating oil markets for millions of dollars in profit, Reuters reported.
Stephen Ardizzone is seeking class action status on behalf of other investors he claims were harmed by an illegal scheme carried out by the accused. He estimates thousands of investors may be in line for payouts and puts his own damages in excess of $50 million. The outcome of the case could have wider implications for other parties disadvantaged by artificially high energy costs such as heating oil dealers and their customers.
The Commodity Futures Trading Commission (CFTC) last week sued James Dyer of Oklahoma’s Parnon Energy and Nicholas Wildgoose of Europe-based Arcadia Energy. The pair and the companies they worked for are accused of buying up huge amounts of actual crude in Oklahoma’s Cushing delivery depot to create a perceived shortage, driving prices up. They then bet prices would fall before selling off their holdings en-mass and driving prices down.
It is the biggest market manipulation case undertaken by the CFTC and signals a crack down by regulators on speculative traders who many blame for artificially inflating global oil prices.
Documents filed by Ardizzone on Thursday in the US District Court in Manhattan allege manipulation of West Texas Intermediate crude oil markets by the accused in late 2007 and early 2008.
“Defendants aggressively exploited their massive physical WTI position to cause artificial prices that unlawfully created profits from their trading positions,” the lawsuit said.
Ardizzone makes claims for manipulation in violation of the Commodity Exchange Act and monopolization in violation of the Sherman Act. His lawyer, Kellie Lerner, said the estimated damages were in excess of the $50 million the defendants are accused of illegally pocketing. The potential group of traders harmed by the defendants’ actions was likely to be in the thousands, Lerner said.
The CFTC is under pressure to introduce new regulations to reign in speculators and its latest prosecution is a bold move. However legal experts say that separating legitimate trading from illegal market manipulation in this case and proving wrongdoing will be difficult for prosecutors, the Wall Street Journal reported.
Oil speculators routinely store crude for profit and lay big bets on future price movements. The CFTC must demonstrate that Dyer and Wildgoose successfully used the crude they purchased to influence the broader oil market, which turns over hundreds of millions of dollars in daily trading.
“Based on the facts as we know them now, if they were found guilty, that would make me very afraid to be a commodity trader going forward,” said Dan Pickering, co-president of the Houston investment bank Tudor Pickering & Holt.
A judge must now decide whether to grant Ardizzone class action status in the case.
Speculators Deny Wrong Doing in Oil Market Manipulation Case
An oil trading firm charged with illegally manipulating oil markets says it has done nothing wrong and will fight Commodity Futures Trading Commission investigators. (image: businesstrends.wordpress.com)
An oil speculator charged with manipulating commodity markets to make massive profits has denied committing unlawful activity and vows to defend the charge.
But the Commodity Futures Trading Commission (CFTC) is warning rogue speculators who try to rig markets they will be hunted down, Reuters reported Wednesday.
“We’re watching and we’ll come and get you,” warned CFTC commissioner Bart Chilton.
The CFTC has charged two speculators and the companies they worked for with manipulating oil markets in early 2008. Prosecution documents allege the defendants bought up huge amounts of actual crude in the Oklahoma delivery point to create a perceived oil shortage, pushing up prices. They then bet prices would retreat before selling their physical oil holdings, flooding the market with oil and deflating the price.
The group is alleged to have made $50 million in profit from the scheme, which was only abandoned when they realized CFTC investigators were looking into their activities.
But one of the defendants, oil trading firm Arcadia Petroleum, hit back at the CFTC yesterday, saying it had done nothing illegal and promising to fight the charge.
“The CFTC is wrong on both the facts and the law,” Arcadia chief financial officer Colin Hurley said in a statement.
The London-based oil trading company typically markets about 800,000 barrels of oil a day around the world, Reuters reported. But Hurley denied that Arcadia was big enough to influence the U.S. crude oil futures market, which turned over $300 million to $400 million a day in early 2008.
“The CFTC’s allegations of misconduct were inconsistent with market conditions and with Arcadia’s trading activity during the period.”
Though civil actions involving the derivatives markets are often settled out of court, Arcadia did not expect a settlement to be possible in this case.
“In short, our activity involved legitimate and lawful trades at market prices that were dictated by the fundamentals of supply and demand,” said Hurley, who also speaks for co-defendant Parnon Energy Inc. of California. “We look forward to proving this in court.”
The CFTC is seeking damages of up to $200 million. The defendants also include Swiss-based Arcadia Energy, James T. Dyer of Australia and Nicholas J. Wildgoose of California.
CFTC commissioner Chilton said he wished investigators had moved more quickly, but complex investigations like this took time.
“I hope this sends a resounding message to whoever may consider manipulating or attempting to manipulate the futures markets.”
University of Maryland law professor Michael Greenberger – the CFTC’s former trading and markets director – said the case promised to be the first of many such prosecutions.
“I believe it’s going to have a deterrent on market actors as we speak.”
Speculators Charged With Manipulating Oil Prices
Regulators have charged two speculators with manipulating oil prices in a scheme that reportedly netted them and their companies $50 million. (image: business-ethics.com)
Federal regulators have charged two oil speculators and their companies with manipulating the price of crude and making $50 million profit from their scheme. CNN Money reported.
In a federal court lawsuit, the Commodity Futures Trading Commission (CFTC) alleges the speculators bought up enormous amounts of actual crude in Cushing, Okla, in early 2008. This created a perceived oil shortage, driving up prices and the value of their portfolios.
The speculators are then accused of reversing the scheme by betting oil prices would fall. They then dumped their physical oil holdings, sparking a slide in oil prices and massive profits for the group.
CFTC documents allege the scheme took place between January and April 2008 when oil prices were gradually climbing towards their all-time record of $147 a barrel. The speculators only ended the scheme when they leaned the CFTC was investigating.
The CFTC is seeking damages of up to $200 million in one of the biggest cases it has pursued in the energy markets, the Wall Street Journal reported. The speculators charged are Parnon Energy Inc. of California, Arcadia Petroleum of the United Kingdom, Swiss-based Arcadia Energy, James T. Dyer of Australia and Nicholas J. Wildgoose of California.
The charges come just weeks after President Barack Obama set up a Justice Department taskforce to investigate illegal manipulation of commodity markets and “root out” fraud amid soaring oil and gasoline prices.
Crude topped $115 a barrel earlier this month and gasoline has breached $4 a gallon in some states. Wall Street investors blame the recent price surge on supply threats stemming from violence in North Africa and the Middle East, burgeoning oil demand from China and a weak US dollar.
Wall Street commodity traders are blamed for bidding on futures markets and artificially driving up the price of oil. (image: thestreet.com)
However other commentators blame powerful commodity market speculators and hedge funds for making huge bets on energy futures, artificially driving up the price of crude, gasoline and heating oil.
Following the 2008 financial crisis, the CFTC was mandated to regulate commodity markets. It is currently investigating new “position limits”, which would slap restrictions on speculators to curb volatile oil price movements. However the restrictions are mired in delays amid huge opposition from the finance sector.
Though investment banks, hedge funds and commodity traders argue they are not responsible for driving oil price hikes, heating oil dealers have been campaigning to reign in the effect of speculation. A group of senators recently wrote to the CFTC blaming Wall Street “gamblers” for high oil prices and demanding regulators implement the news rules immediately.
The CFTC prosecution is a significant step in this process. If the charges are proven, it will undermine the finance sector’s arguments and give new incentive for regulators to impose the restrictions mandated under the Dodd-Frank financial reform act.
The New England Fuel Institute, which represents heating oil dealers, welcomed news of the prosecution.
“For years NEFI has been pressuring the CFTC to vigorously police the oil markets, especially in light of the recent speculative bubble in energy pricing,” NEFI president Michael Trunzo told HeatingOil.com. “We commend the CFTC for the recent enforcement actions which only highlight the need for swift and comprehensive imposition of new trading rules, and we urge Congress to give the CFTC the financial resources to do so.”
Washington Democrat Senator Maria Cantwell told Bloomberg the prosecution was exactly what was expected of the CFTC. “I expect the CFTC to be aggressive in policing these markets and standing up for consumers who are getting gouged at the pump.”
Speculators a “Cancer” on American Economy
Wall Street speculators are accused of artificially driving up commodity prices for profit. There are growing calls for federal regulators to reign in the effects of speculators to help prevent volatile price movements. (image: dailymail.co.uk)
The backlash against speculators continues, with renewed calls for regulators to reign in financial “parasites” accused of driving up oil prices.
In a Huffington Post article on Friday, political analyst Robert Creamer accuses Wall Street traders of adding up to 25 percent to the cost of oil. Volatile fluctuations in commodity prices seen in recent weeks are “fresh evidence” of speculators’ influence on markets, he argues. Fundamentals of supply and demand no longer hold sway.
Those fundamentals did not provide any justification for a 10 percent decline in prices that occurred last week – any more than they justified the earlier 25 percent-plus run up in prices that has resulted in $4 to $4.50 per gallon gasoline across the United States.
Oil prices have slipped dramatically in the last fortnight from a 30-month high of $115 a barrel on fears soaring energy costs are stifling growth and denting global oil demand. But Creamer says the only thing that changed to trigger the dramatic slide was traders’ appetite for financial risk.
“Speculators decided that oil prices had reached their near-term peak and it was time to take massive profits.”
A group of 17 senators wrote to the Commodity Futures Trading Commission (CFTC) last week calling for implementation of new “position limits” to reign in speculative trading and prevent spikes in oil prices. Though the CFTC is mandated to bring in the new rules under the Dodd-Frank financial reform act, it faces huge opposition from the financial sector.
Creamer notes that speculative markets are useful for bona fide commercial users like airlines or heating oil dealers to hedge against commodity price movements.
Financial speculators, on the other hand, don’t produce anything. They are gamblers pure and simple … They place bets that the price will go up or that it will drop. So they benefit when prices are volatile. They benefit from speculative bubbles.
As soon as the bubble bursts and the price turns, the smart speculator reverses his positions – takes profits and bets against the market – accelerating the market’s decline.
There is evidence of just such activity last week, when CFTC figures show speculators reduced the number of “long” bets that oils prices would rise, with some betting the price was set to fall.
Creamer quotes 2009 research from the Norwegian University of Science and Technology that found increased speculative interest in a market led to “speculative euphoria”, where large flows of money drives volatile price movements, creating “uncertainty for physical producers and consumers.”
Speculative interest in the oil markets has doubled from 18 percent to 36 percent between 2003 and 2009, the research found – costing Americans billions of dollars, Creamer says. That money goes “directly into the pockets of speculators, multinational oil companies and the bank accounts of royal families in countries like Saudi Arabia and Bahrain.”
The growing financial sector was “a cancer” on the economy, which siphoned off hardworking Americans like a parasite.
Everyday Americans have to insist on an end to the speculative orgy. The priorities and values reflected in the American economy must once again reward hard work and innovation — not speculation and greed.
Heating Oil Dealer Misses Out on CFTA Nomination
In a blow to the heating oil industry, experienced heating oil dealer Sean Cota has been passed over for a position on the Commodity Futures Trading Commission. (image: Cota & Cota)
An experienced heating oil dealer in the running for a post on the Commodity Futures Trading Commission has been overlooked by President Obama.
Sean Cota was championed for the commissioner’s post earlier this year by Senator Patrick Leahy. The post becomes vacant next month with the departure of current commissioner Michael Dunn.
Cota’s omission is a blow for the heating oil industry. The experienced heating oil dealer runs and co-owns his family business, Cota & Cota Oil. He has vast experience at hedging oil futures and knows intimately the challenges faced by heating oil dealers and their customers.
He is also an advocate for reform of the derivatives markets and has given evidence several times before Congressional committees and the CFTC.
Heating oil dealers are battling huge oil price spikes, which many commentators blame on unregulated speculative traders gambling on the international commodity markets, artificially driving up the price of heating oil and crude.
Last year Congress passed the Dodd-Frank financial reform act, which mandated the CFTC to set new rules and “position limits” on major traders to help prevent volatile price movements following the 2008 financial crisis.
In an exclusive interview with HeatingOil.com in March, Cota – who currently chairs the Petroleum Marketers Association of America and who previously headed the New England Fuel Institute – said “if we want to fix energy markets, we have to fix everything.”
The Dodd-Frank law is a well-balanced attempt at a fix, but almost none of the rules in the bill have been implemented, and many still need to be written.
Heating oil dealers have long used the commodity markets to hedge against sudden movements in the price of oil they buy and sell. But there are fears powerful investment banks and big funds are distorting commodity markets with huge sums of money by trading massive portfolios of oil contracts they never intend to physically use.
Cota is part of the Commodity Markets Oversight Coalition, which has advocated reform. But in his March interview he said the group was “outgunned” by big financial interests who fiercely oppose the proposed regulations.
If appointed to the CFTC, Cota had promised to give an honest assessment and focus on the commercial users commodity markets were created for.
Speculators play an important role in commodity markets, but we need rules governing their activities so that they do not overwhelm these finite markets. In poker, if you have $1,000 but you’re sitting at a table of millionaires, you will never win, even if you play perfectly.
NEFI this week reported that President Obama had chosen Mark Wetjen for the CFTC position – a senior aide to Senate Majority Leader Harry Reid. NEFI president Michael Trunzo told HeatingOil.com he was disappointed Cota had missed out on the nomination but congratulated him for having been considered.
We know that Sean will continue to be a strong voice for the heating oil industry as we strive to protect our consumers from the speculative oil market.
Senators Demand Action To Implement Dodd-Frank Rules Amid Rising Oil Costs
CFTC chairman Gary Gensler is under mounting pressure to implement new rules in order to control speculators and reign in volatile spikes in the price of oil. (image: heatusa.com)
A group of 17 senators have hit out at financial regulators charged with reigning in commodity speculators and called for immediate action to control soaring oil prices.
In a joint letter this week to the Commodity Futures Trading Commission (CFTC), the senators criticized delays in imposing “position limits” on major financial traders who buy and sell oil contracts. They are demanding the new rules be implemented immediately to stop Wall Street traders gaming the system like “casino” gamblers at the expense of ordinary Americans.
The CFTC’s failure to act may again be saddling consumers with higher gas prices, higher food costs, and inflationary fears, all of which jeopardize our nation’s economic turnaround.
The letter says unchecked speculation is driving “wild and harmful oil price volatility, unwarranted Wall Street profits, and elevated gasoline and diesel prices at the pump.”
Heating oil consumers endured record winter fuel prices and motorist in some states are now paying over $4 a gallon for gasoline. And though the CFTC was mandated to implement new rules last year when Congress passed the Dodd-Frank financial reform bill, the regulations have repeatedly been pushed back amid fierce opposition from the finance sector.
A Republican bill currently before the House would further delay the regulations till early next year.
The Commodity Futures Trading Commission is charged with implementing new financial regulations as mandated under the Dodd-Frank act. (image: reuters.com)
The senators (15 Democrats, one Republican and one Independent) said the CFTC was required, not just authorized, to implement the position limits in energy commodities within 180 days of the bill’s July 2010 enactment “to protect consumers from excessive speculation and possible manipulation in the energy futures and swaps markets.” Its failure to do so was hurting ordinary Americans and signaled that powerful Wall Street financial interests were “succeeding in their efforts to water down Congressional-required boundaries on speculation in oil and commodity markets.”
Each day the CFTC fails to act increases the financial sector’s oil market profits, boosts the already substantial oil company windfalls, and enriches the treasuries of countries we import oil from – all harmful and unwarranted transfers of wealth directly from hardworking American families and businesses.
The senators called for the CFTC to impose position limits on oil traders immediately as required by law.
The letter is the latest in a growing chorus of demands for action by federal regulators amid soaring world oil prices, which have driven up the cost of home heating oil, gasoline, food and transported goods.
Heating oil dealers, who are rallying this week in Washington, wrote to a Congressional committee last week with similar demands. They warned that further delays would “preserve today’s artificially high commodity prices caused by excessive speculation in the derivatives markets.”
In a Star Tribune report this week, Rep Collin Peterson of Minnesota cited a study by Goldman Sachs investment bank. It found market manipulation added $27 to the price of a barrel of crude oil, costing consumers 33 cents per gallon at the gas pump.
Sean Cota is the president of the Petroleum Marketers Association of America. He believes unchecked speculation could lead to another commodities bubble and see price spike comparable to the 2008 crisis. (image: heatingoil.com)
But Petroleum Marketers Association of America president Sean Cota called the estimate “dramatically low.” Crude cost $45 a barrel to produce but was currently trading at about $100 a barrel, he said. Without regulation, he predicted an oil price bubble that could be more devastating than a 2008 spike when oil prices hit $140 a barrel.
With President Obama’s recent criticism of speculators’ influence over oil prices, CFTC regulators now face mounting pressure to implement the new rules. And without the regulations, heating oil users and dealers, motorists and consumers will remain vulnerable to volatile prices spikes in oil markets.
Click here to see the full text of the senators’ letter and its signatories.
UN Calls For G-20 Nations to Negotiate “Fair” Price For Oil
A girl walks along a pipe in the Mumbai slum of Dharavi - home to some one million people. The UN wants rich nations to negotiate a "fair" price for oil to prevent high energy and food costs driving millions more people in third world countries into poverty. (image: pakistankakhudahafiz.wordpress.com)
The UN wants G-20 countries to negotiate “fair” oil costs with OPEC and reduce speculation to avoid volatile price movements driving millions more people into poverty.
The international agency suggests limiting price movements within a band to help counter damaging price spikes driving up the cost of energy and food, which are hurting third world nations, ArabNews.com reported. In a statement released last week with its annual report on Asia and the Pacific, the UN said the group of 20 countries – which includes the US and Great Britain – needed to “act decisively to moderate the volatility of oil and food prices.”
Rising costs threaten to drive millions more people into poverty in Asia, most severely affecting the populations of nations in Bangladesh, India and Nepal, the UN said. The G-20, a group made up of the European Union and 19 of the world’s richest nations, could also regulate commodity markets to reduce speculation and “discipline the conversion of food into bio-fuels,” the report said.
Oil prices have jumped 36 percent in the past year. Despite dramatic market corrections in the last week, oil is still hovering around the $100-a-barrel mark and market analysts expect it to gain in price long-term because of bullish demand from China and concerns about global oil supplies. As average US gasoline prices approach the psychological $4 a gallon mark ahead of the US summer driving season, President Barack Obama is under pressure to reign in oil prices. He has set up a special taskforce to investigate fraud and illegal manipulation of commodity markets, but has resisted calls to tap the nation’s emergency oil reserves to help bring prices down.
President Barack Obama is under pressure to reign in gasoline and heating oil prices, which are eating into the income of ordinary Americans. (image: nymag.com)
Only last week, the International Energy Agency called on OPEC to boost production to help ease global oil prices. An IEA report this week forecasts weakening global oil demand because of continuing high prices. But Saudi Arabia, the world’s biggest oil producer, recently said it had reduced production amid weak demand and looks unlikely to increase output. Other commentators believe Saudi Arabia needs oil prices to remain high in order to pay for increased domestic spending designed to stave off pro-democracy protests that have dogged other Arab nations in the region.
“OPEC seems to have somehow resigned from playing an active role in price formation, leaving it up to the market, including speculative players,” said Pierre Terzian of consultancy Petrostrategies.
The UN’s calls to “discipline the conversion of food into bio-fuels” is noteworthy. The Obama administration has signaled a desire to see more biofuel development in the US, with calls for money now spent propping up Big Oil companies to be diverted to alternative energy research. Investing more in alternative, sustainable fuel sources is not only good for the environment. It would also help bring gasoline and heating oil prices down, as biodiesel can be blended with traditional petroleum-based number 2 heating oil.
However, such policies are likely to face significant political hurdles from the likes of major energy companies and politicians representing oil-rich states.
