Today, Congressman Joe Donnelly became a co-sponsor of H.R. 594, which would close an existing loophole that exempts electronic energy trading from federal commodities laws. This exemption enables traders to participate in regulation-free off-market deals, known as "over-the-counter" (OTC) trading.
"We must close this loophole which allows off-market energy traders to play by their own rules with no oversight," Donnelly said. "As a result, off-market speculators are driving up the price of oil and hurting American consumers."
Traditionally, trading of commodities such as crude oil, gasoline, and natural gas takes place on the New York Mercantile Exchange. This trading is overseen by the Commodity Futures Trading Commission (CFTC). However, since the loophole was opened in 2000, an increasing amount of OTC trading has led to speculation and energy price manipulation.
Speculators, by definition, do not produce or use a commodity, but risk their own capital trading futures in that commodity in hopes of making a profit on price changes. In the absence of regulation, speculators are free to bid up the price of a commodity. H.R. 594 would deter such speculation by increasing fines to $1 million or triple the monetary gain and jail time to a maximum of 10 years.
"Without effective oversight, there is no way to know whether energy speculators are basing trades on market realities, or instead taking advantage of the system to make money at the expense of hard-working Americans," Donnelly said. "Congress must act to stop these speculators from continuing to drive up energy prices."
If passed, the legislation would provide better oversight, quicker enforcement, and stricter penalties to prevent market manipulation. As a result, the legislation would help eliminate unreasonable inflation of energy prices, thus protecting American consumers.
During a December 2007 Congressional hearing on energy speculation, Michael Greenberger, a professor of law, testified that better federal oversight of these OTC trades could reduce the price of crude oil by as much as $30 a barrel and reduce the price of natural gas by one-third.
Donnelly's support of H.R. 594 comes a week after he sent a letter to President Bush requesting that he temporarily suspend the additional purchase of oil for the Strategic Petroleum Reserve (SPR) and release 20 million barrels of oil from the SPR into the market in order to immediately reduce the price of gasoline for American drivers. The SPR was established in the aftermath of the 1970s oil shortages to be our nation's backstop in future energy crises. Currently, it is at 96 percent capacity.
Independent industry estimates suggest that prices at the pump could be reduced by as much as twenty-five cents per gallon solely through the act of temporarily suspending the additional purchase of oil for the SPR.