Sen. Sanders proposes legislation to limit Wall Street’s influence in setting fuel prices
Sen. Bernie Sanders (I-Vt.) introduced legislation today that would order the federal commodity regulators overseeing futures trading to limit the positions on oil speculators in an effort to curb high gas prices.
The bill, titled End Excessive Oil Speculation Now Act of 2011, has been in the making for weeks as Sanders and other lawmakers in the House and Senate have investigated why prices at the pump remain higher than two years ago even though supply is up and demand is lower.
The Dodd-Frank bill from 2010 included a provision that required the Commodity Futures Trading Commission to tackle the excessive speculation with a plan of enforcement by January 22, 2011. Those statutory obligations have yet to be met, and the bill would add one more piece of law to compel the CFTC to limit disruptive trading.
An email from Sanders’ office to The American Independent reads:
Dodd-Frank required the CFTC to impose position limits to end excessive speculation, but gave the CFTC the flexibility to determine exactly what those limits should be. A majority on the commission has not determined what those exact limits should be so they have not gone into effect.
Our bill mandates the chairman of the CFTC to unilaterally impose specific speculation limits (the same as the position accountability levels NYMEX has had on the books since 2001); and 12% margin requirements. If [Chairman] Gensler can’t get that done, the Senator said he should resign.
A margin requirement is the amount of collateral the trader must deposit. It is a regulatory instrument meant to cover some of the risk assumed by a broker or exchange for taking part in the trade. The position limits in the bill would be applied to the price of crude oil, gasoline, diesel fuel, jet fuel and heating oil.
Rep. Maurice Hinchey (D-N.Y.) said in a press release, “The price of gasoline has spiked up due to record speculation, and small businesses and working people are paying the price. This legislation would immediately implement new rules to ensure the price of fuel is based on supply and demand – not the whims of greedy speculators.” Hinchey intends on introducing a companion bill in the House.
Sen. Sanders sent a letter (PDF) to the president in April articulating concerns raised in his bill:
Other experts believe that excessive speculation is driving up crude oil prices by 50 percent. This means that Americans are paying Wall Street a premium of 70 cents to $1.63 a gallon every time they fill up their gas tanks.
On the Senate floor in May, Sen. Bill Nelson (D-Fla.) dispensed with the notion market forces were to blame for the uptick in gas prices. “That reason happens to be that there are speculators out there running around, running the price up of commodity exchanges for oil futures contracts,” he said, “and those prices run up until they’re ready to dump them and suddenly [the prices] go down.”
According to the U.S. Energy Information Agency, the average price of a gallon at the pump in conventional areas was $2.315 in 2009. The EIA now puts that figure at 3.713, an eight-cent decline since May 30.
In a report last month from Dow Jones, CFTC Commissioner Bart Chilton tried to clarify the correct punitive language necessary in dealing with traders’ activity.
“Manipulation is something that is very specific in the law and has a really high hurdle for us to prove, so that’s why we’ve only had one successfully prosecuted manipulation case in the 36-year history of the CFTC,” he told Dow Jones. Speculation, on the other hand, is legal, according to Chilton.
On the Senate floor today, Nelson went on to say speculators account for two-thirds to 80 percent of the market. “They are the main player,” he said, “and this is what we need to end.”
Futures trading was established as a way of more accurately aligning the cost of output with consumer demand. For oil, prices are set in futures markets, where contracts allow oil producers to lock in prices on their future output. That makes prices predictable and secure, especially for large consumers like airline companies, who rely on the locked in prices to hedge against inflation and better plan cost of services.