Cantwell Calls for Crackdown on Wall Street Gambling That Drives Up Gas Prices
Cantwell: ‘WA drivers are paying at the pump for reckless Wall Street oil speculation’
WASHINGTON, D.C. – In a letter sent today, U.S. Senator Maria Cantwell (D-WA) urged the U.S. Commodity Futures Trading Commission (CFTC) to crack down on oil speculation that has contributed to a recent spike in gas prices. In a letter to CFTC Chairman Gary Gensler, Senator Cantwell and 11 other senators urged him to use the new authority granted in the Wall Street reform law to combat excessive speculation.
Washington state gas prices have gone up 40 cents-per-gallon over the last month, from an average of $3.29 to $3.68, according to AAA figures. Commodities experts have said that oil speculators are driving up the cost of oil in the wake of news from the Middle East, with speculators responsible for as much as $15 in the price of an oil barrel. (CNBC, 3/8/11)
“Washington drivers are paying at the pump for reckless Wall Street oil speculation,” Senator Cantwell said.“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.”
In the letter, the senators stressed that the price of oil has less to do with the traditional laws of supply and demand, and more with speculators artificially inflating the price – and perceived demand – of oil. Since the latest round of civil unrest began late January in North Africa and then the Middle East, oil trades by speculators have jumped dramatically 35 percent to 50 percent in some markets. During that same period, U.S. gas prices have soared by almost 40 percent. Since September 2010, gas prices have skyrocketed nearly 60 cents per gallon in Washington state and nearly 80 cents per gallon on average nationally.
Cantwell has long fought to prevent speculators from driving up the price of oil. During last year’s financial regulatory reform debate, Cantwell fought 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 and strong anti-manipulation tools were main contributors to Cantwell’s eventual support of the legislation.
Following is the text of the senators’ letter to Gensler:
March 16, 2011
The Honorable Gary Gensler
U.S. Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, N.W.
Washington, DC 20581
Dear Chairman Gensler,
There is strong evidence the recent surge in gas prices has little to do with the fundamental supply and demand for oil. 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.
Speculators are seizing on recent political turmoil in North Africa and the Middle East to drive energy prices to unwarranted levels. The Commitment of Traders Report reveals that speculators have flooded into the market in recent weeks. Since protests began in Egypt on January 25, 2011, money managers have increased their long positions in NYMEX West Texas Intermediate crude oil futures contracts by more than 35 percent, or the equivalent of 75 million barrels of oil. Oil speculators have increased long positions on the Intercontinental Exchange by nearly 50 percent. At the same time, actual true hedgers have reduced their long positions in the oil futures markets.
The loser in this game of oil speculation is the American consumer. Rising oil futures translate into higher gas prices, and that means Americans have less money in their pockets to pay for basic needs.
In the Dodd-Frank Wall Street Reform and Consumer Protection Act, we empowered your Commission with a number of new tools to rein in excessive speculation and prevent market failures. In addition to mandating speculative position limits, we removed the broad statutory restriction that prohibited the CFTC from imposing higher margin requirements. Section 736 authorizes the CFTC to require higher margin requirements in order to protect the financial integrity of the futures trading markets. Now is the time to exercise that authority. New margin requirements could take effect as soon as July, but the CFTC must begin the rulemaking process now. Higher margin levels would reduce incentives for excessive speculation by requiring investors to back their bets with real capital.
For the same reason we don’t let pharmaceutical companies approve their own drugs, we shouldn’t let futures exchanges self-regulate by setting their own margin requirements. This hands-off, self-regulatory approach has led to a fundamentally inequitable system in which ordinary investors are required to post 50 percent margin to buy a stock, but Wall Street traders post only six percent to purchase a risky and volatile futures contract.
We urge you to act quickly to raise the margin requirements imposed on speculative oil contracts. The margin increase should only apply to speculators, not true hedgers. This is consistent with current exchange policies that apply different margin requirements for investors and bona fide hedgers. With your leadership, we can discourage damaging and excessive speculation in the oil markets and bring down gas prices.
Sen. Sherrod Brown (D-OH) Sen. Maria Cantwell (D-WA)
Sen. Barbara Boxer (D-CA) Sen. Al Franken (D-MN)
Sen. Jeff Merkley (D-OR) Sen. Patty Murray (D-WA)
Sen. Robert Menendez (D-NJ) Sen. Mark Begich (D-AK)
Sen. Jay Rockefeller IV (D-WV) Sen. Carl Levin (D-MI)
Sen. Barbara Mikulski (D-MD) Sen. Bill Nelson (D-FL)
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