Cantwell Calls for CFTC to Enact Overdue Rules to Crack Down on Oil Speculation

Federal Agency Has Missed Deadline Set by Congress, Now 3 Months Late in Implementing Rules to Rein in Excessive Oil Speculation CFTC Commissioner Says Speculation is at ‘All-Time High,’ Costing Americans at the Gas Pump

VANCOUVER, WA – Today, U.S. Senator Maria Cantwell (D-WA) demanded federal regulators use the authorities that Congress granted them last year to crack down on excessive oil market speculation that may be contributing to artificially high gas and diesel prices in Vancouver and around the country.

Cantwell called on the regulatory body 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 three months late on their January 2011 deadline to take action, while consumers continue to pay high prices at the pump.                      

CFTC Commissioner Bart Chilton – one of five commissioners at the agency – said in a March 25, 2011 letter to Cantwell that oil speculation is at “an all time high,” up 64 percent since June of 2008. According to analysis compiled by Chilton, excessive oil speculation costs drivers between $8-16 per tank, depending on the kind of car they drive.

Gas prices in Vancouver have gone up 18 cents-per-gallon over the last month, and 80 cents-per-gallon over the last year, hurting small business and burdening families and the economic recovery. Diesel prices are 86 cents more per gallon over this time last year, hitting truckers, farmers and transit services particularly hard. A family of four in Washington state can expect to pay $337 more to drive this summer than last.

“Vancouver drivers are paying at the pump for excessive oil speculation, while federal regulators have blown off deadlines and failed to act,” Senator Cantwell said.“In last year’s Wall Street Reform law, we gave the financial cops the tools they need to rein in rampant oil speculation and protect consumers. Today, I’m demanding that they use those tools to help relieve the burden of gas prices on families and small businesses in Vancouver and across the country.”

Implementing speculative position limits – restrictions on the size of investors’ commodity holdings – would limit price volatility and unpredictability in commodities such as oil. The sheer volume of new capital coming from hedge funds, financial traders and other long-term passive investors –interests that mostly buy oil futures to turn a quick profit rather than meet a bone fide need to hedge risk – is creating artificial demand and driving up the price for consumers in ways unrelated to actual supply-and-demand fundamentals. Position limits can also stop individual oil speculators from amassing excessively large numbers of oil futures in order to distort the futures market’s normal pricing functions.

According to a new data set released this week by Senator Cantwell and U.S. Commodity Futures Trading Commission (CFTC) Commissioner Bart Chilton, Honda Civic drivers are paying $8.35 per gas tank due to excessive speculation; Ford Explorer drivers are paying $14.45 more per tank; and Ford F150 drivers, the most popular pick-up, are paying $16.69 more per fill up.

Last month, Cantwell urged the CFTC to crack down on oil speculation that is likely contributing to recent gas prices spikes. In a letter to CFTC Chairman Gary Gensler, she urged him to use the new authority granted in last year’s Wall Street reform law to combat excessive speculation. Commodities experts have said that oil speculators are driving up the cost of oil in the wake of news from the Middle East. CFTC Commissioner Chilton responded with a letter confirming that the latest data shows speculative positions in the energy sector are at an all-time high – up 64 percent from June 2008.

Also last month, Cantwell sent a bipartisan letter to the Federal Trade Commission (FTC) calling for an investigation into any links between rising gas prices and a sharp increase in wholesale oil markets. In August 2009, the FTC finalized its Petroleum Market Manipulation Rule, which was promulgated in compliance with legislation Cantwell authored in 2005 and successfully shepherded into law in 2007, making it a crime to manipulate wholesale oil markets. She is now calling on the consumer protection agency to use its new authority to meet their responsibility to protect consumers.

In the letter sent last month to the FTC, Cantwell noted that the price per barrel of oil over the past three years has varied drastically despite comparatively little change to the world’s supply and demand. She asserted that the FTC must be more proactive and aggressive in enforcing its market manipulation rule, noting the success the Federal Energy Regulatory Commission (FERC) has had in ferreting out bad actors in the electricity and natural gas markets using identical authority, and she details several questions she wants answered to shed light on any illegal activity that is behind the pain at the pump. She continues: “The high gas prices that are hurting American families and businesses today represent the first major test of FTC’s ability to protect consumers in this market. We urge you to use the authority of the Petroleum Market Manipulation Rule aggressively in order to protect consumers from unnecessarily high and volatile gas and diesel prices.” Senator Rockefeller (D-WV), Chairman of the Senate Committee on Commerce, Science, and Transportation which has jurisdiction over the FTC, also signed Cantwell’s letter. Senators Olympia Snowe (R-MA), Ron Wyden (D-OR) and Mark Pryor (D-AR), all long-time defenders of consumers, signed on as well.

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. 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.

In 2005, Cantwell first introduced legislation that would create a federal ban on oil market manipulation to prevent Enron-style manipulation schemes from happening to the oil industry. Cantwell’s legislation banning manipulation in the oil and petroleum markets became law in the 2007 Energy Bill. Her provision empowers the FTC to levy civil penalties of up to $1 million per day. Over the course of the FTC’s nearly two-year rulemaking needed to fulfill its Congressionally-mandated responsibility to prevent manipulation in the oil and petroleum markets, Cantwell aggressively pushed the Commission to lay out the strongest rules possible. The final FTC rule went into effect on November 4, 2009 and essentially adopted all of Cantwell’s recommendations.