President Obama on Tuesday announced a far-ranging plan to crack down on oil speculation, which he blames in part for the recent run-up in oil prices. The high prices are lightening consumer wallets during the summer driving season, posing a threat to the economic recovery.
President Obama’s $52 million plan would raise the margin requirements for oil traders, increase penalties on those who trade unlawfully and give more power and resources to the Commodity Futures Trading Commission to track oil market trading. Violators could face fines of up to $10 million.
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“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,” the president said. “We can’t afford a situation where some speculators can reap millions, while millions of American families get the short end of the stick,” Obama said.
The president also wants Congress to reverse last year’s budget compromise that could lead to cuts in the number of staffers at the CFTC, which oversees commodities trading. “Congress should provide immediate funding to put more cops on the beat to monitor activity in energy markets,” the president said. “This funding would also upgrade technology so that our surveillance and enforcement officers aren’t hamstrung by older and less sophisticated tools than the ones that traders are using. We should strengthen protections for American consumers, not gut them.”
The legislation is unlikely to get much traction in the Republican-controlled House and drew immediate scorn on Wall Street, which is the target of increased government oversight.
"The call for much higher margin requirements has been a rallying cry for the those who prefer to blame the price discovery mechanism for the underlying conditions that produce the prices being paid,” John Kilduff, a partner at Again Capital in New York, told the Christian Science Monitor. “Oil supplies are routinely under threat from governments that control the spigot and disaffected populations that want a bigger piece of the rock. Demand has gone nowhere but up.”
The move by Democrats in the White House and on Capitol Hill has been in the works for weeks as a response to charges by Republican frontrunner Mitt Romney that the Obama administration’s energy policies are to blame for skyrocketing gasoline prices.
A coalition of consumer groups, petroleum marketers and some industrial users last month called for new controls on oil futures markets. The demanded curbs on speculation that they say is driving up oil and gasoline prices and threatening to derail the economic recovery.
Speaking to reporters at a press conference called by the Consumer Federation of America, economist Mark Cooper and University of Maryland law professor Michael Greenberger, who in the late 1990s oversaw derivatives trading at the Commodity Futures Trading Commission, called for laws that would stop investment banks like Goldman Sachs and Morgan Stanley from selling oil-based commodity index funds; order an immediate Justice Department probe into oil speculation; and add 400 oversight staff to the CFTC to police oil and other futures markets.