April 22, 2011
Obama’s Gas-Price Task Force Should Also Examine Legal Speculation of Markets
Statement of Tyson Slocum, Director, Public Citizen’s Energy Program
President Barack Obama’s announcement Thursday introducing a new task force to root out fraud and manipulation of the oil markets is a good start but doesn’t completely address the problem of high gas prices.
The problem is not necessarily that gas prices are being driven by fraudulent or manipulative behavior by traders and speculators. The problem is that skyrocketing prices are driven by excessive speculation that is perfectly legal.
Goldman Sachs recently estimated that speculation accounts for roughly $27 of the current price of crude oil. Since then, prices have gone up by $5 a barrel, so now speculation is estimated to account for more than $30 a barrel – or 70 cents a gallon, according to Public Citizen analysis.
This problem can be solved. If we’re serious about bringing relief to consumers, we need to rein in the speculators by ordering the Commodity Futures Trading Commission (CFTC) to implement firm position limits on traders and require that all trades are fully regulated by federal officials.
The Dodd-Frank Wall Street Reform and Consumer Protection Act set firm position limits that would help curb speculation, but the CFTC has delayed their implementation.
While there have been cases of energy companies committing fraud – think Enron, Amaranth Advisors and, most recently, the $303 million penalty against BP for manipulating U.S. energy prices – we believe the real culprit now is not illegal fraud and manipulation, but legal price-gouging courtesy of excessive speculation.
The fact remains that we need to address and reduce legal levels of speculation so that prices better reflect the supply and demand fundamentals, rather than the speculative whim of banks and other financial players.