NEWS RELEASE:
Consumer Watchdog Welcomes Investigation of Oil Price Manipulation, Cautions That CFTC May Be Ill-Equipped
Santa Monica, CA — The announcement that federal regulators are
investigating possible price manipulation in oil futures markets is a
welcome indication that the Bush administration accepts the possibility
of manipulation in $130 oil prices, said Consumer Watchdog. However,
the group expressed doubt that the Commodity Futures Trading Commission
could conduct such an investigation on its own and called for explicit
support from the White House, as well as participation by the FBI,
Justice Department investigators, or both.
Despite the obvious need for stronger regulation of energy trading
markets, Consumer Watchdog noted that President Bush recently vetoed,
as part of the farm bill, a Senate measure to add oversight and
regulation to currently unregulated portions of these markets. Bush
should state his explicit support for the oversight measure and urge
its separate passage if necessary.
Consumer Watchdog also called on Bush to add FBI and other Justice Department resources to the weak, understaffed CFTC.
“We have a president who, just a few months ago, was unaware of the
possibility of $4-a-gallon gasoline and refused to blame anyone but
OPEC for oil prices,” said Judy Dugan, research director of Consumer
Watchdog. “He has to increase public confidence that his administration
is serious about investigating market manipulation.”
The CFTC itself has consistently expressed doubt that manipulation has
occurred, said Consumer Watchdog. At a Senate energy hearing as
recently as May 20, Jeffrey Harris, chief economist of the CFTC, stated
that he believed prices that had already hit $130 were explained by the
weak U.S. dollar, demand from emerging economies, world unrest, bad
weather and supply disruptions. Other analysts at the hearing strongly
suggested that such “market fundamentals” could not explain the price
hike.
“On its face, the investigation smacks of the fox investigating a hen
shortage in the chicken coop,” said Dugan. “It is up to the CFTC and
the Bush administration to show that the investigation is well-staffed
and unrestricted.” (See Harris testimony here.)
Consumer Watchdog noted that oil prices fell sharply Thursday as news
of the investigation broke. A number of analysts have predicted that
better market oversight alone could sharply drop oil futures prices.
Adding to doubt about the CFTC’s capability to fully examine market
manipulation, Sen. Jeff Bingaman of New Mexico, chairman of the Senate
Energy Committee, was highly critical Wednesday of the CFTC’s
reluctance to see manipulation in energy markets, sending the
regulatory body a scathing letter. (See more details on Bingaman letter here.)
The CFTC Thursday also announced measures to beef up oversight of both
regulated and unregulated energy markets, though due to lack of
regulatory authority the effort involves only voluntary
information-sharing with unregulated trading exchanges. (See full CFTC announcement here.)
The exchanges are unregulated because Congress, in 2000, agreed with
Enron energy traders that electronic trading required no government
oversight. The resulting “Enron Loophole” has allowed futures traders
to evade reporting their activity, even as the market grew
exponentially and was flooded with exotic hedge fund trading
instruments.
Consumer Watchdog has called for stronger energy market oversight, including:
Closing the “Enron Loophole” in commodity trading regulation. A
regulatory measure in the federal farm bill (S.2058 by Sens. Dianne
Feinstein and Carl Levin) would help stop speculative oil pricing. The
farm bill was recently vetoed by President Bush, though the veto is
likely to be overridden. (See more on Enron Loophole and farm bill amendment here.)
Increase the amount of margin funds that traders must put up in energy
markets to help suppress speculation. Currently, traders must put up
only 5% to 7% of the trade’s value, allowing control of large contracts
with little money up front. In contrast, stock traders must put up 50%.
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