The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 gave the Commodity Futures Trading Commission (CFTC) new authority to prevent speculation and profiteering in oil futures trading. While most Americans didn't know that Congress included this critical provision in this bill, it's long past time that CFTC uses its new authority to tackle high gas prices.
A lot of things impact the cost of oil - production levels, demand, supply disruptions, natural disasters, speculation, and international affairs all play a role. And there has been an overarching debate on the causes of recent oil price swings. Some say price spikes are caused entirely by the fundamentals of supply and demand. Others contend that excessive speculation in the oil futures market and other issues are to blame.
But that debate has been largely ended. A lot of factors explain the high prices we are seeing, but it's not as simple as conventional supply and demand calculations.
The facts bear this out. According to the Energy Information Administration, the supply of oil and gasoline is higher today than it was three years ago, when the national average price for a gallon of gasoline was just $1.90. And, while the national average price of gasoline is close to double that now, the demand for oil in the U.S. is at its lowest level since April of 1997.
In addition, according to the International Energy Agency, in the last quarter of 2011 the world oil supply rose by 1.3 million barrels per day while demand only increased by 0.7 million barrels per day. Yet, during this same period, the price of Texas light sweet crude rose by over 12%. Meanwhile, oil speculators now control over 80 percent of the energy futures market, a figure that has more than doubled over the past decade.
Groups as diverse as Exxon Mobile, Goldman Sachs, the Saudi Arabian government, the American Trucking Association, Delta Airlines, the Petroleum Marketers Association of America, and the St. Louis Federal Reserve have all indicated that excessive oil speculation significantly increases oil and gasoline prices.
In fact, recent reports found that excessive Wall Street oil speculation adds $.56 a gallon to the price we all pay at the pump - money that's lining the pockets of hedge fund managers and that Americans shouldn't be paying.
As the cost to fill our gas tanks continues to skyrocket, the CFTC continues to drag its feet on imposing strict speculation limits to eliminate, prevent, or diminish excessive oil speculation. Although the CFTC has taken some initial steps in the right direction, they are not strong enough and not yet in force due to Wall Street opposition and delays in oversight and data collection. This is simply unacceptable and must change.
That's why I joined my colleagues in urging them to take immediate action. I've also pushed the Appropriations Committee to adequately fund the CFTC's operations so they have the resources necessary to make a real difference and finally get the job done.
While there is no silver bullet to solving our high energy prices, we should pursue an all-of-the-above strategy to tackle the problem. In my opinion, we must develop new domestic energy sources, expand oil and gas production, and reduce our overall reliance on oil through greater efficiencies and the development of clean, renewable energy. Maine has taken the lead on developing biomass, wind and tidal power, and federal policies should continue to support the growth of these local sources of energy.
Our nation's energy security is critical to our economic growth and ability to make our way out of this recession. Right now, CFTC's primary duty should be to ensure that the prices Americans pay for gasoline and heating oil are fair and that the markets operate free from fraud, abuse, and manipulation.
Ending excessive speculation on Wall Street, which we know adds directly to the price we pay at the pump, is a no-brainer. The CFTC must do what current law mandates and end excessive oil speculation once and for all.
Congressman Mike Michaud