Cantwell Analysis: High Gas Prices To Cost WA Drivers $672 Million More in Summer 2011

Average WA driver to pay $150 more for gas this summer than last, due to spike in gas prices Cantwell calls on CFTC head to take action to rein in excessive oil speculation

SEATTLE, WA – As summer travel season begins, Washington drivers can expect to pay $150 more in gas prices this summer than last, according to a report issued Sunday by Sen. Maria Cantwell (D-WA).

Cantwell joined AAA Washington at Victoria Clipper’s Seattle waterfront dock to highlight the economic impact of high gas prices on Washington state families and businesses. Gas prices have risen 93 cents in Washington state since Memorial Day 2010 – and 95 cents in the Seattle metro area. This increase means that Washington drivers will pay $672 million more for gas from Memorial Day to Labor Day 2011, compared to last year.

For several months, Cantwell has called on the U.S. Commodity Futures Trading Commission (CFTC) to implement overdue rules to rein in excessive speculation and bring price relief to consumers at the gas pump. This week, Cantwell met with CFTC Chairman Gary Gensler and said that Congress should consider additional action if the CFTC fails to act.

“As we enter the summer driving season, Washington state drivers are still getting gouged at the pump,” Senator Cantwell said. “High gas prices are hurting our economy and impacting Washington families and businesses. Federal regulators need to do their job and rein in the excess speculation that is artificially inflating gas prices. If the CFTC fails to act, Congress may need to take action to hold them accountable.”

High gas prices are hurting small businesses and burdening families and the economic recovery. According to a recent USA TODAY/Gallup poll, more than 50 percent of Americans have made major lifestyle changes because of gas prices – including cutting back on vacation travel. At current prices, Cantwell’s analysis shows that Washington state households will pay $1,422 on average this summer for gasoline they need. In other words, hard-working Washington families will spend about 13 percent of their after-tax income on gasoline at today’s prices.

This week, Cantwell praised the CFTC for filing charges Tuesday in a $50 million oil market manipulation case from 2008 – but said on the Senate floor Wednesday that the case showed the need for immediate CFTC action to rein in excessive speculation that is shifting the oil futures market and artificially driving up gas prices. During her floor speech, Cantwell referenced Enron’s blatant manipulation of Pacific Northwest electricity rates early last decade, saying similar tactics are now happening in the oil market, and they must be stopped. She stated that the CFTC could use its emergency authority to implement position limits today.

Over the last decade, commodity speculation has skyrocketed, leaving businesses that actually produce or consume commodities – such as airlines and wheat farmers – unable to use markets to accurately hedge their risk. In 2000, speculation accounted for 37 percent of the oil futures market; today it’s about 70 percent with physical hedgers accounting for only around 30 percent.

Goldman Sachs has estimated that for every million barrels of oil held by speculators, the price of a barrel of oil goes up 8 to 10 cents. As of May 3rd, speculators held positions in U.S. crude oil contracts equivalent to 258 million barrels, which by Goldman’s accounting could account for around $25 per barrel – about a quarter of the cost of a barrel of oil today. 

Cantwell has long fought to prevent market manipulation and excessive speculation from artificially driving up the price of oil and prices faced by consumers at the pump. In recent months, she has called on the CFTC to not delay any further in implementing overdue rules on speculative position limits. The 2010 Wall Street Reform bill called for the CFTC to implement speculative position limits in energy markets within 180 days of enactment. The CFTC is more than four months late on its January 2011 deadline to take action, while consumers continue to pay high prices at the pump.

During last year’s financial market reform debate, Cantwell pushed for tough and effective rules and the elimination of loopholes to prevent speculators from manipulating the oil market. She fought to ensure that the bill required the CFTC to enact position limits to diminish, eliminate or prevent excessive speculation that disrupts the market. Mandatory speculative position limits, which the CFTC is in the process of setting now, and strong anti-manipulation tools were main contributors to Cantwell’s eventual support of the Wall Street reform law.

Cantwell brought to the larger financial regulatory reform effort the knowledge she gained from a decade of fighting to protect Washington state ratepayers, including her historic battle to expose the ways Enron manipulated West Coast electricity markets to jack up prices. Using the lessons learned, Cantwell helped author provisions in the 2005 Energy Bill that made it a crime to manipulate electricity or natural gas markets. To date, the Federal Energy Regulatory Commission (FERC) has used the law to conduct 93 investigations resulting in 45 settlements and civil penalties of $122,230,000 and disgorgement of profits totaling $35,945,000. Cantwell also secured a provision in the Energy Policy Act of 2005 that prevented a bankruptcy court from forcing Snohomish Public Utility District (PUD) and its customers to pay millions of dollars in termination fees for electricity that was never delivered. This measure reaffirmed FERC’s authority to decide whether charges related to manipulated power contracts could be deemed invalid.