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Washington, D.C. – Congressman Jerry McNerney (CA-11) today backed another legislative effort to crack down on speculators who artificially drive up the cost of a barrel of oil.
The bill, H.R. 6604, also known as the Commodity Market Transparency and Accountability Act, was considered in the House this afternoon.
“Even with the recent slight drop in price in Northern California, consumers continue to be squeezed at the pump,” Rep. McNerney said. “A huge percentage of oil’s cost is determined by speculators who bet on its future price, actually driving up the cost at the pump.”
In fact, according to testimony by Fadel Gheit, Managing Director and Senior Oil Analyst at Oppenheimer & Co., Inc., in front of the Energy and Commerce Committee’s Subcommittee on Oversight and Investigations on June 23, “There were no unexpected changes in industry fundamentals in the last 12 months, when crude oil prices were below $65 per barrel. I cannot think of any reason that explains the run-up in crude oil price, beside excessive speculation.”
In 2000, a loophole in federal law was created at the behest of Enron, exempting all energy futures trading from oversight by the CFTC. Before the Enron loophole law, an estimated 70 percent of the energy futures market trades were made by energy producing and using industries – only 30 percent by speculators. Today, those numbers are reversed—and trading volume has increased six-fold.
The legislation takes steps to curb excessive speculation in the energy markets, close the Enron loophole, bring much-needed transparency to commodities and futures markets, and strengthen enforcement to prevent market manipulation and to prosecute fraud.
It directs the Commodity Futures Trading Commission, the regulatory body that oversees the trading of contracts for future deliveries of commodities – including crude oil, to:
- Oversee Off-shore Trading – Makes offshore markets trading in the U.S. follow the same rules as U.S. exchanges by requiring foreign boards of trade to share trading data and adopt limits on the number of futures contracts an investor can own similar to U.S.-regulated exchanges. Foreign boards of trade that offer electronic access to U.S. traders for energy or agricultural commodities to be delivered in the U.S. are not currently subjected to the same position limits traders are subject to on domestic exchanges.
- Set Position Limits – Requires the CFTC to set position limits, the size of the stake that each speculative investor can hold in a given market, for all agricultural and energy commodities on the designated contract markets, such as the New York Mercantile Exchange. This will limit traders’ ability to amass huge positions that would otherwise allow them to distort the market.
- Limit eligibility for hedge exemptions to bona-fide hedgers – Reforms the process for granting hedge exemptions from trading limits in order to shut down a loophole that has allowed institutional investors to take, through a series of trades, larger positions, than they would be able to take if they traded on the exchanges directly.
Due to a procedural rule for the consideration of H.R. 6604, even though the legislation ostensibly received sufficient votes to pass the House, because it did not reach the 2/3 majority necessary, the bill did not pass.
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