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Congress Takes on the Oil Specualtors

July 8, 2008 - by Donny Shaw

There’s a near consensus in Congress that the best plan of action for lowering gas prices is to control the influence of financial speculators in futures markets. At a recent House Energy and Commerce Committee hearing, financial experts testified that eliminating excessive speculation could reduce gas prices by as much as 50 percent. A dozen or so bills have been introduced in Congress by members of both parties, each with a slightly different approach to addressing the issue. But it finally looks like one has been singled out to pursue and pass into law.

The Energy Markets Emergency Act of 2008 was passed by the House in June, and on the Senate floor yesterday, it was read for a second time and placed on the calendar for action in the future.

Of all the bills in Congress for dealing with energy speculation, this one takes a particularly broad and less-prescriptive approach. It directs the Commodity Futures Trading Commission, an independent agency that was created by Congress to guard against manipulation in commodities markets, to take any actions necessary to reduce excessive speculation in energy futures markets. After a findings section that is definitely worth reading, the bills states:

>Direction From Congress-The Commodity Futures Trading Commission shall utilize all its authority, including its emergency powers, to—
>(1) curb immediately the role of excessive speculation in any contract market within the jurisdiction and control of the Commodity Futures Trading Commission, on or through which energy futures or swaps are traded; and
>(2) eliminate excessive speculation, price distortion, sudden or unreasonable fluctuations or unwarranted changes in prices, or other unlawful activity that is causing major market disturbances that prevent the market from accurately reflecting the forces of supply and demand for energy commodities.

By giving the CFTC the authority to use its emergency powers over any market “on or through which energy futures or swaps are traded,” it will allow them to close infamous loopholes, like the “”">Enron loophole" and the “”">London Loophole," that are widely believed to be being used to artificially drive up energy prices. And what exactly are the CFTC’s emergency powers, you ask? According to the Commodity Exchange Act:

>The Commission is authorized—
>(9) to direct the registered entity, whenever it has reason to believe that an emergency exists, to take such action as in the Commission’s judgment is necessary to maintain or restore orderly trading in or liquidation of any futures contract, including, but not limited to, the setting of temporary emergency margin levels on any futures contract, and the fixing of limits that may apply to a market position acquired in good faith prior to the effective date of the Commission’s action…

The potential problem with this bill is that it calls on the CFTC to do something that they are already capable of doing if they believe it is necessary. Since the CFTC was created formed in 1976, they have used their emergency powers only four times. All four time were because of distinct market disturbances, not price trends that developed over several months like the current situation with gas prices. So if the modus operandi of the CFTC is to stand back and allow speculation trends to drive up prices, nothing in this bill actually requires them to change their ways and step in to intervene.

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