06-09-09 by dugan
Oil prices hitting close to $70 a barrel today are a speculator’s paradise. Their party, of course, is being paid for by consumers at the pump and struggling businesses. Gasoline is averaging $2.62 a gallon nationally and California is within a dime of $3.00 at the pump. Haven’t we been here before? The NY Times gets to the story today, telling us "high gas prices could slow recovery."
Almost every energy analyst has given up trying to tell us that it’s supply and demand driving energy prices, since demand is still dropping worldwide and oil is still piling up in huge storage facilities, including giant tankers bobbing around in the ocean. One of the smiliest faces is Exxon Mobil, which has again overtaken Wal-Mart as No. 1 on the Fortune 500.
One good sign for the rest of us is that the new guy in charge of federal energy market oversight, Commodity Futures Trading Commission chief Gary Gensler, says he is adamant about getting speculative markets under control. Sen. Bernie Sanders of Vermont, who originally opposed Gensler’s nomination to the CFTC, says he had a very specific exchange of views with Gensler that changed his mind. Here’s what Sanders put into the record:
“Here is what Mr. Gensler wrote in terms of strongly regulating
credit default swaps and other derivatives, something that Mr. Gensler
opposed in the Clinton administration. Mr. Gensler now says: ‘I
believe we must urgently move to enact a broad regulatory regime that
covers the entire over-the-counter-derivatives marketplace. As a key
component of this reform, we should subject all derivatives dealers to:
- conservative capital requirements;
- business conduct standards;
- record keeping requirements (including an audit trail);
- reporting requirements; and
- conservative margin requirements
‘I
believe that the CFTC should be provided with authority to set position
limits on all OTC derivatives to prevent manipulation and excessive
speculation. Such position limit authority should clearly empower the
CFTC to establish aggregate position limits.’“Mr. Gensler
also wrote to me saying that ‘I will work closely with Congress to pass
legislation that will mandate registration of hedge fund advisers. In
addition, I will work with agency staff to review all previously
granted exemptions from registration.’“Finally, Mr. Gensler
told me in writing that he supports ‘actions to close the ‘London
loophole’ and ensure that foreign futures exchanges with permanent
trading terminals in the U.S. comply with position limitations and
reporting and transparency requirements that are applied to trades made
on U.S. exchanges.’The question is whether Gensler can act in time to keep oil speculators from jacking up not just the price of fuel but the price of food–driving an inflationary spiral that could kill economic recovery.