In a move to combat unjustified oil and gas price increases, the White House today announced a crackdown on manipulation in the oil markets. President Barack Obama also called on Congress to pass legislation setting margin limits on financial traders that would ensure illegal manipulation is not contributing to higher prices at the pump.
"The increase in oil prices since the beginning of the year has coincided with an increase in non-commercial trading activity in crude oil futures," a White House announcement said.
Word of the crackdown comes just two weeks after a Democratic U.S. senator publicly urged the administration not to reappoint the top U.S. commodities regulator unless he quickly implemented trading curbs intended to dampen speculation and reduce fuel costs for Americans.
Sen. Bill Nelson (D-FL), as reported earlier this month by news outlets including Reuters, sought swift action by Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler to implement limits on the number of oil contracts a single trader can hold. Nelson has long been raising concerns that speculators are responsible for driving up oil prices.
"Middlemen are bidding up the price of oil and flipping futures contracts for a quick profit, much like speculators who bought and resold condominiums during the real estate bubble," Nelson wrote in a letter to Obama, dated April 3.
The CFTC has been charged with writing rules that would restrict unregulated speculation in futures contracts, under the so-called Dodd-Frank financial reform law. Under that law, the CFTC was given the ability to limit speculation by setting a maximum amount a single speculator could control in a market.
Nelson noted in his letter to the president that those limits were supposed to be finalized more than a year ago, but have been slowed due to "intense pressure from industry lobbyists."
Nelson and Gensler are scheduled to meet later today and are expected to discuss the new speculation initiative announced by the White House. The senator also has proposed legislation that would prevent any single investor from holding more than five percent of the oil futures market -- commonly called position limits.
He has said he doesn't think legislation setting margin limits is needed, because the Dodd-Frank law gives that authority to the CFTC. Nelson and a dozen other senators outlined that view in a letter to Gensler, dated March 16, 2011.