US House bill goes after energy market speculation
06.20.08, 3:17 PM ET
United States - By Jasmin Melvin
WASHINGTON (Reuters) - Legislation introduced in the House of Representatives on Friday would crack down on over-the-counter crude oil trading and go after speculators suspected of pushing oil prices to record levels.
The Prevent Unfair Manipulation of Prices, or PUMP, act, would eliminate loopholes allowing energy traders to amass excessive profits while inflating the price of oil for consumers, by trading on foreign markets and entering into other deals that currently escape federal oversight.
The bill's main sponsor, Rep. Bart Stupak, Democratic chairman of the House Energy and Commerce Committee's Subcommittee on Oversight and Investigations, said excessive speculation was "killing our economy."
Speculation usually accounts for only $8 to $9 per barrel to the cost of crude, but in current markets, he said, speculation is adding about $65 to $70 a barrel -- almost half the price of oil.
"We don't mind people making money," Stupak said. "We're not saying end speculation. We're saying end the excessive speculation that continues to put a higher and higher floor (on oil prices)."
Democratic Rep. Jay Inslee said the law of supply and demand, which some have cited as causing the rise in oil prices, are not at work here. "These are the laws of what happens when you allow manipulation and excessive speculation, because you don't have a fair review of these markets," he said.
Under the bill, overseas trading of energy commodities, such as on the InterContinental Exchange, would be subject to the same rules as U.S.-regulated markets, if traders use U.S.-based computer terminals or the transaction has a delivery point on American soil.
The Commodity Futures Trading Commission, which oversees futures trading on U.S. exchanges, would also get authority to monitor bilateral trades and swaps that occur between two parties and are not negotiated on a regulated exchange.
"The CFTC has allowed 117 different exceptions for swaps," Stupak said. "When you allow 117 exceptions, you have part of the market that's basically doing what it wants with little or no oversight from the government."
Stupak said this allows traders to drive the price of oil to what is most beneficial for them. The PUMP bill would require reporting and recordkeeping for all such transactions, allowing the CFTC to monitor for fraud and manipulation.
The bill would also require the CFTC to set position limits on the number of energy contracts a trader could control "over all markets" and would no longer allow speculators to be exempt from position limits for hedging risks, unless they have "legitimate anticipated business needs."
The Federal Energy Regulatory Commission would retain the authority to prosecute market manipulation, and get the added authority to freeze the assets of companies it prosecutes.
Companies would no longer be able to liquidate and distribute their assets before a verdict to avoid monetary penalties.
The legislation has more than 50 co-sponsors, including some Republicans. Additionally, a coalition of consumer, labor and business organizations, representing mainly the airline industry, endorsed the PUMP bill. (Editing by Walter Bagley)
Copyright 2008 Reuters, Click for Restriction
Analysts say Gas could drop $2.00/gal..
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Originally Posted by TheScotsman
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Socialist??? Name me ONE market that is completely unregulated in the United States. I didn't say cap the gas prices.. thats socialism. I said set the market right, every industry has standards to which they have to operate and those standards are NOT self imposed. When speculation in the energy sector is out of control it needs to be stopped, I don't know specifics as some may but I do know something has to give.
Not saying its the way of life but don't be quick to shoot down China's government because they have become a global economic superpower while the U.S is on a decline.
) lol
