WASHINGTON, D.C. - Following the release of a recent report showing that excessive Wall Street betting adds a 56-cent premium to every gallon of gasoline, U.S. Sen. Sherrod Brown (D-OH) renewed his call to the Administration to crack down on oil speculation. Brown was joined by Bud Burle, owner and operator of K-Limited Carrier, Ltd from Toledo, who outlined how unregulated oil speculation leads to rising gas prices and hurts Ohio small businesses, truckers, and consumers alike. According to the Energy Information Administration, the supply of oil and gasoline is higher today than it was three years ago, when the national average price for a gallon of gasoline was just $1.90. While the national average price of gasoline is now over $3.70 per gallon, the demand for oil in the U.S. is at its lowest level since April 1997.
"Excessive oil speculation and rising gas prices hurts virtually all Ohioans-from parents driving to work or dropping the kids off at school to the entrepreneur trying to keep his or her small business alive. Higher fuel costs get passed along the production line, ultimately making food and other necessities more expensive at a time when working families are already struggling to make ends meet," Brown said. "We're seeing gas prices rise long before the peak summer driving season-and excessive oil speculation is a key source of these cost spikes. In fact, one recent report showed that out-of-control speculation adds 56 cents to every gallon of gasoline siphoned from the pump-and that's outrageous.
"The Commodity Future Trades Commission (CFTC) has the power to set stricter limits-but it has yet to do so," Brown added. "That's why I am once again urging the CFTC to use its full authority under the law to crack down on excessive oil speculation. We cannot afford to sit idly by while Wall Street and Big Oil get richer and Ohio's families and small business owners foot the bill."
Oil speculation occurs when prices are driven by investor activity, rather than traditional market forces. The Wall Street reform bill requires strict limits on speculation to have been enacted by January 2011, but no regulations yet exist to protect Ohio consumers from these risky Wall Street bets and rising gas prices. That same month, Brown wrote to the CFTC urging the agency to use its full authority under the recently-passed financial reform bill to protect consumers and small businesses from artificially inflated gas prices.
The CFTC has passed final "position limits" rules, which will not go into effect until the CFTC issues subsequent rules, which could delay implementation for months. Brown is urging the CFTC to enact now-overdue regulations to protect consumers and small businesses from artificially-inflated gas prices. On Sunday, he released a letter to the CFTC, cosigned by 70 other Members of Congress and Senators, urging it to immediately enact strong limits of speculation to protect Ohio consumers from excessive Wall Street betting that leads to high gas prices. Last week, at an Appropriations subcommittee hearing, Brown asked U.S. Attorney General Eric Holder about the work of the Oil and Gas Price Fraud Working Group, a task force designed to examine oil speculation. The task force was formed in April 2011, but no findings have ever been reported to the public.
Brown is working to lower gas prices for Ohio's families and small businesses. Brown has repeatedly pressed the CFTC on speculation, urging the agency to use its full authority to protect consumers and small businesses from artificially-inflated gas prices. In January 2011, Brown wrote to the CFTC urging the agency to use its full authority under the recently-passed financial reform bill to protect consumers and small businesses from artificially inflated gas prices.
He is also a sponsor of the No Oil Producing and Exporting Cartels (NOPEC) Act, which would give the U.S. Attorney General the authority to pursue legal action against oil-producing nations, like the Organization of the Petroleum Exporting Countries (OPEC), that band together to manipulate the price of oil, natural gas, or any petroleum product. The bill clarifies that OPEC's activities are not protected by sovereign immunity and that the federal courts should not decline to hear such a case based on the "act of state" doctrine. This would enable the Department of Justice to take action against foreign states for colluding to set the price or limit production of oil. He has also called on U.S. Secretary of State Hillary Clinton to push Organization for Petroleum Exporting Countries (OPEC) to increase production levels.
The text of the letter to the CFTC Commissioners is below.
Dear Chairman Gensler, and Commissioners Chilton, Wetjen, Sommers, and O'Malia:
We are writing to urge you to immediately enact strong position limits to eliminate excessive oil speculation as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. As you know, the Dodd-Frank Act mandated that your agency promulgate and enforce such limits no later than January 17, 2011. We are disappointed that, more than a year later, the Commission has not fulfilled this important regulatory duty.
Congress determined that speculative position limits are an effective and critically important tool to address excessive speculation in America's oil and gasoline markets. It is one of your primary duties--indeed, perhaps your most important--to ensure that the prices Americans pay for gasoline and heating oil are fair, and that the markets in which prices are discovered operate free from fraud, abuse, and manipulation.
There has been a major debate over the last several years as to whether spikes in oil prices are caused entirely by the fundamentals of supply and demand or whether excessive speculation in the oil futures market is playing a major role. It is clear to us that debate has ended. Exxon Mobil, Goldman Sachs, the Saudi Arabian government, the American Trucking Association, Delta Airlines, the Petroleum Marketers Association of America, and even a report last year from the St. Louis Federal Reserve have all indicated that excessive oil speculation significantly increases oil and gasoline prices. According to a February 27, 2012 article in Forbes, excessive oil speculation "translates out into a premium for gasoline at the pump of $.56 a gallon" based on a recent report from Goldman Sachs.
The facts bear this out. According to the Energy Information Administration, the supply of oil and gasoline is higher today than it was three years ago, when the national average price for a gallon of gasoline was just $1.90. And, while the national average price of gasoline is now over $3.70 a gallon, the demand for oil in the U.S. is at its lowest level since April of 1997. Nor is the global supply of oil at issue. According to the International Energy Agency, in the last quarter of 2011 the world oil supply rose by 1.3 million barrels per day while demand only increased by 0.7 million barrels per day. Yet, during this same period, the price of Texas light sweet crude rose by over 12%. Meanwhile, oil speculators now control over 80 percent of the energy futures market, a figure that has more than doubled over the past decade.
As the cost for American people to fill their gas tanks continues to skyrocket, the CFTC continues to drag its feet on imposing strict speculation limits to eliminate, prevent, or diminish excessive oil speculation as required by the Dodd-Frank Act. Although the CFTC has adopted initial position limits, they are not strong enough and not yet in force owing to industry opposition, delays in swaps oversight and data collection. This is simply unacceptable and must change.
We urge you to take immediate action to impose strong and meaningful position limits, and to utilize all authorities available to you to make sure that the price of oil and gasoline reflects the fundamentals of supply and demand. This could entail promulgation of rules only with regard to the currently regulated exchange markets. Swaps rules should also be implemented immediately, but even so, waiting for swaps rules to trigger all position limits is simply not adequate to protect consumers. We urge you to develop alternative methods of moving forward and to do so as swiftly and expeditiously as possible.
We have a responsibility to ensure that the price of oil is no longer allowed to be driven up by the same Wall Street speculators who caused the devastating recession that working families are now experiencing. That means that the CFTC must do what the law mandates and end excessive oil speculation once and for all.
Thank you for your attention to this important matter. We look forward to receiving your response.