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The Dog Ate My Homework

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Before I got involved in politics, I taught high school science and math. I don't think a student ever tried to tell me, "My dog ate my homework." But if one did, I think I would have called his or her parents to make sure the family actually owned a dog. If you're going to make excuses, at least make them plausible.

This week at the White House, President Obama announced a new proposal to stop manipulation of the international oil market. He's calling on Congress to pass legislation and spend an additional $52 million to enforce regulations.

The average price of a gallon of regular gasoline has climbed to $3.95 in the state of Pennsylvania. Consumers expect the President to do his homework and propose solutions to stabilize and bring down prices. However, when you go looking for the market manipulators and speculators that the President blames for the current prices, they are difficult to find. You can't blame the dog for eating your homework if there isn't a dog.

International oil markets aren't freewheeling saloons where gamblers play poker with each other. They are highly regulated and closely watched. Playing the market certainly entails risk, but it is not gambling. Investors analyze market forces and make informed decisions about the price of oil. Just like with stocks, they want to buy low and sell high. Investments don't always pay off, but unlike a Vegas casino, the house doesn't always win.

Meanwhile, multiple government agencies are watching the market, making sure that trades are being made according to the rules and that traders aren't gaming the market. These agencies include the Department of Energy's Energy Information Agency, the Federal Trade Commission, and the Commodity Futures Trading Commission.

The Federal Trade Commission regularly reports on the state of the gasoline market. In 2005, 2008, and just last year, they came to the conclusion that market forces were the main driver of what Americans pay at the pump. The major factors setting prices are demand for crude oil and refinery capacity.

At the start of the recession in 2008, worldwide demand for oil dipped. Now with economies recovering, especially in developing nations like China and India, demand is well above 2008 levels.

Certainly there are actors involved in the market who bend or break the rules. In last year's FTC gasoline report, they note action taken against a terminal and pipeline owner to prevent a sale that could lead to higher fuel prices for consumers. Also, in June 2011, the FTC announced that they were undertaking another investigation into whether there is any market manipulation.

Despite this ongoing investigation, the President wants to give tens of millions of dollars to the Commodity Futures Trading Commission to conduct a duplicative examination. In his speech this week, the President failed to cite a single existing case of manipulation. How many government agencies do we need to investigate the President's hunch that something is wrong?

What is often forgotten is that speculators drive prices up at their own risk. You can certainly try to artificially inflate a market for personal gain, but if you don't pull out at the right moment the bubble bursts and you've lost perhaps billions of dollars. Market manipulators risk the loss of a fortune and prosecution.

Unnamed speculators are easy targets for the President. For good reason, the American people don't trust Wall Street traders. Even if we find speculators and crack down on them, the problems of supply and demand don't go away.

To solve a problem created by demand, you increase supply. This week, the House attached approval of the Keystone XL pipeline to the transportation bill. It passed overwhelmingly with 293 votes, 69 of them Democrats. Keystone XL by itself will not have a huge effect on price, but it should be part of a comprehensive program to increase supply.

The President is standing in the way of solutions that don't cost the American people one dime. In fact, increasing access on public land and allowing private development of energy infrastructure brings revenue into the government. It's time to stop blaming the dog and do the work that needs to be done to lower gas prices.

Rep. Joe Pitts is a Republican who represents Pennsylvania's 16th Congressional District, which includes parts of Berks, Chester and Lancaster counties.


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