Cantwell, Murray among senators asking for action on gas prices
Twelve U.S. senators — including Washington state Democrats Maria Cantwell and
Patty Murray — are calling on federal commodities regulators to rein in speculation on oil, which they say is driving up gasoline prices.
In a letter to Gary Gensler, chairman of the U.S. Commodities Futures Trading Commission, the senators are asking for increases in margin requirements for speculative oil contracts. Such power over the commodities exchanges was granted to the commission in legislation passed last year.
"There is strong evidence the recent surge in gas prices has little to do with the fundamental supply and demand for oil," the senators wrote in the letter. "Government data confirm that oil speculators are driving the price increase.
"We urge you to restore integrity to our energy markets by exercising the CFTC's authority to require higher margin levels for speculative oil futures contracts."
Margin is the amount of money a person puts up to buy futures contracts. With stocks, one can trade on up to 50 percent margin, buying $100,000 worth of stock with $50,000 collateral. Wall Street traders, under current rules, may post as little as 6 percent of the value of the futures contract, according to the senators.
Cantwell, who pushed for increased regulations on futures trading, said it's time for action.
"Washington drivers are paying at the pump for reckless Wall Street oil speculation," Cantwell said in a statement. "Last year, we gave the financial cops the tools they need to rein in rampant Wall Street speculation. Today, we're asking them to put those tools to use. It's time for Wall Street to stop the reckless gambling on what it costs for Washingtonians to fill up their gas tanks."
The letter from the 12 Democratic senators describes how speculators are seizing on political turmoil in North Africa and the Middle East to drive up energy prices. Since protests began in Egypt on Jan. 25, money managers have increased their long positions in NYMEX West Texas Intermediate crude oil futures by more than 35 percent — or the equivalent of 75 million barrels of oil. On the Intercontinental Exchange, they have increased their long positions by 50 percent. (A "long position" is an expectation that the commodity will go up in value.)
Meanwhile, true hedge traders have reduced their long positions in the futures markets, the letter said.
The result of this kind of trading, the senators said, was to drive up gasoline prices, giving Americans less money to spend on basic needs.
Robert Dillon, spokesman for the Republican staff of the Senate Energy and Natural Resources Committee, said the market responds to production uncertainties with higher prices.
"But putting limits on the free market isn't going to change the fundamentals of supply and demand," Dillon said. "We should instead be producing more of our own resources and relying less on foreign imports to meet our energy needs."
The Dodd-Frank Wall Street Reform and Consumer Protection Act placed limits on speculative positions and removed prohibitions on certain actions by the futures commission.
"Now is the time to exercise that authority," the senators said. "New margin requirements could take effect as soon as July, but the CFTC must begin the rule-making process now. Higher margin levels would reduce incentives for excessive speculation by requiring investors to back their bets with real capital."
Consistent with exchange policies, the higher margins should apply only to speculators, not to investors or bona fide hedgers, the letters states.
In addition to Cantwell and Murray, signatories are Sens. Sherrod Brown, D-Ohio; Barbara Boxer, D-Calif.; Al Franken, D-Minn.; Jeff Merkley, D-Ore.; Robert Menendez, D-N.J.; Sen. Mark Begich, D-Alaska; John D. Rockefeller, D-W.V.; Carl Levin, D-Mich.; Barbara Mikulski, D-Md.; and Bill Nelson, D-Fla.http://www.kitsapsun.com/news/2011/mar/17/cantwell-murray-among-senators-asking-for-action/#ixzz2BMx51Al8
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