Stung by gas prices, Obama seeks new oil market crackdown

WASHINGTON Tue Apr 17, 2012 5:45pm EDT

A motorist pumps fuel into his vehicle at JJ's Express Gas Plus station in Phoenix gas station in Phoenix, Arizona August 10, 2011. REUTERS/Joshua Lott

A motorist pumps fuel into his vehicle at JJ's Express Gas Plus station in Phoenix gas station in Phoenix, Arizona August 10, 2011.

Credit: Reuters/Joshua Lott

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WASHINGTON (Reuters) - U.S. President Barack Obama, whose political fortunes are threatened by rising gasoline prices, proposed new measures on Tuesday to reduce oil market manipulation that are unlikely to get support from a divided Congress.

Obama called on lawmakers to raise civil and criminal penalties on individuals and companies involved in manipulative practices.

He also pressed for more money to fund the agency charged with policing the markets to hire "more cops" for oversight and upgrade old technology.

"We can't afford a situation where speculators artificially manipulate markets by buying up oil, creating the perception of a shortage, and driving prices higher, only to flip the oil for a quick profit," Obama said in the White House Rose Garden.

"We should strengthen protections for American consumers, not gut them," he said.

Republicans, who blame Obama's energy policies for high gasoline prices, called the effort a political gimmick, and said the new measures would not help Americans struggling with high gasoline prices.

"It probably polls pretty well, but I guarantee it won't do a thing to lower prices at the pump," said Senate Republican leader Mitch McConnell.

"The president has all the tools available to him if he believes the oil market is being manipulated," said John Boehner, the Republican speaker of the House of Representatives.

SOME DEMOCRATS WANT MORE

Obama has spent weeks trying to show he is on the case to bring down energy costs over the short- and long-term.

Gasoline prices have surged nearly 50 cents since late January, as tensions in the Middle East and supply disruptions bolstered oil costs. While prices at the pump have eased slightly in the past two weeks, gasoline remains around $3.92 a gallon nationwide.

Republicans have argued the administration needs to allow more drilling to help lower prices. But the only way to reduce the harm caused by gasoline price increases is to use less of it, said Andrew Holland, an energy policy analyst at the American Security Project, a Washington think-tank.

"The truth is, neither party is offering policies that will effectively address high gas prices," Holland said.

Senior administration officials, speaking to reporters on a conference call, said increased volatility in oil markets justified the need for the crackdown.

While congressional Democrats praised Obama's move, many have pushed him to go farther.

"I would do some additional things, but basically I'm very pleased that he's responding," said U.S. Senator Carl Levin, a Michigan Democrat whose investigations subcommittee in the past has linked speculation to higher commodity prices.

Levin and other senators want the administration to push the Commodity Futures Trading Commission, or CFTC, to enforce limits on speculation that were part of the Dodd-Frank banking reforms.

The financial industry has challenged those limits in court.

Senator Maria Cantwell is working on legislation that would ban commodity index funds from the oil market, a move backed by consumer advocates.

Peter Welch, a Democratic congressman from Vermont, said Obama should also release oil from U.S. emergency reserves to further dampen speculative buying.

"When it's been deployed in the past, it has spooked the speculators," Welch told Reuters.

HIGHER PENALTIES

Obama also asked Congress to give the CFTC the power to increase traders' margins in an effort to reduce risky trading. Currently, futures exchanges are in charge of setting margins, based on volatility.

Obama's proposal drew a quick response from the CME Group, the world's largest operator of futures exchanges.

"Taking away from exchanges the ability to manage margins would make the markets less efficient, less tied to fundamentals and would create the potential to push the hedgers out of the market, which would make oil more expensive for all consumers," the company said in a statement.

The CME also warned against confusing speculation with manipulation, and said speculations play an important role in helping oil producers and consumers offset their price risks.

The CFTC filed a record number of enforcement cases last year, but has yet to win a manipulation case involving oil.

Its lone victory is a 1998 case that accused a trader of gaming electricity futures, which took more than a decade to settle.

The CFTC is engaged in a high-profile case against oil merchant Arcadia Energy for allegedly manipulating physical oil supplies to profit on futures trades.

Obama said he wants Congress to hike civil penalties for firms involved in market manipulation to $10 million from $1 million, and also increase maximum criminal penalties.

(Additional reporting by Ayesha Rascoe, Timothy Gardner; Editing by Doina Chiacu)

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Comments (87)
Inertia wrote:
Funny how this suddenly becomes an issue as elections come up. This legislation should have been taken care of years ago. What a puppet.

Apr 17, 2012 8:39am EDT  --  Report as abuse
Venerability wrote:
We all really know, do we not, that the only way to promote fair and stable Oil prices worldwide is to make sure Oil is priced against a fair, balanced, and neutral Basket of World Currencies, rather than against “Emperor Dollar?”

Oil – and all commodities – have been pawns in the world’s Currency Wars, rather than trading on supply and demand, as they should.

That’s what the rise of Brent Crude is all about: It reflects a much fairer and more neutral market than WTI Crude provides – not perfect yet, but much fairer.

Everyone also knows that the US has been extraordinarily privileged in the Oil prices we pay, compared to practically every other country in the world, because of the domination of the Dollar in world trade for the past fifty years, largely because of the US’s “special relationship” with the Saudis, which was the primary basis for the rise of the Dollar as the world’s reserve currency.

If President Obama – or the GOP – refuses to fully grasp the above and integrate it into their thinking about Oil, any and every action they take will be useless.

And it is rather strange, to say the least, that the Obama Administration is declaring these plans for attempted Oil market manipulation just at the time the IMF is about to meet in Washington.

As at previous IMF meetings, the non-G-7 portion of the G-20 will once again push for a greater stake within the IMF and its coordinated plans for the world. A big part of that has to do with the fair pricing of commodities.

Apr 17, 2012 9:08am EDT  --  Report as abuse
Matt-Chicago wrote:
hilarious

Apr 17, 2012 9:38am EDT  --  Report as abuse
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