U.S. Senators Dick Durbin [D-IL, pictured] and Tom Harkin [D-IA] chaired a hearing today to investigate how excessive speculation in the oil market may be contributing to the historic run on oil and gas prices.Durbin is the chairman of the Appropriations Subcommittee on Financial Services and General Government, the subcommittee responsible for overseeing the budget of the U.S. Commodity Futures Trading Commission [CFTC]. Last month, Durbin chaired a hearing on the budget request for the CFTC.
Last week, at a hearing before the Senate Agriculture Committee, the agency charged with oversight of the agency, CFTC officials testified that additional resources, including more staff, are needed to help this agency carry out this mission.
Today's hearing, held jointly before the Senate Appropriations Subcommittee on Financial Services and General Government, and the Senate Committee on Agriculture, Nutrition, and Forestry, probed the CFTC's role in regulating the market and what tools and resources the agency needs to ensure it is able to be a robust market watchdog.
"With the economy in a tailspin and with the average price for a gallon of gas topping $4 across the country, people are asking ‘Why is this happening?'" Assistant Majority Leader Durbin said. "Is excessive speculation taking place, or is it simply supply and demand? The answer is that no one knows, and the CFTC lacks the information, resources and, in some cases, the legal authority to tell us."
Testifying before today’s joint panel were the chief executives of the New York Mercantile Exchange [NYMEX] and Chicago Mercantile Exchange [CME], as well as the vice president of IntercontinentalExchange [NYSE: ICE]. Also testifying were representatives of the Consumer Federation of America and the Air Transport Association.
“In the past year, gas costs have risen 30 percent," said Harkin. "Consumers are seeing the results of this increase in rising costs for everything -- from the gas they put in their vehicles, to the loaf of bread at the grocery store. We deserve to know why.
"We rely on the CFTC to tell us whether our commodity markets are working, or whether manipulation or distortion of markets by excessive speculation is causing price bubbles that should be addressed. With CFTC officials testifying previously that additional resources, including staff, are needed to carry out their oversight responsibilities, Congress has a responsibility to provide them with the resources and authorities they need to do their job. We addressed some of this in the Farm Bill, but further resources may be needed."
CFTC is the nation’s leading regulator of futures markets. However, a lack of resources and weakened authorities have prevented them from being able to gather information and effectively monitor the full breadth of the oil market.
Currently, CFTC is only able to monitor the activity that takes place on U.S.-based exchanges – a fraction of the total market for oil transactions. They are unable to gather information about trades which take place on global markets, like ICE, or on over-the-counter exchanges between firms.
In addition, trading in commodity markets has exploded from nearly 500 million trades in 2000 to over 3 billion trades in 2007. CFTC’s staffing levels, however, have not kept pace. Full-time employee [FTE] levels have dropped over that same period of time, from 546 in 2000 to 437 last year – nearly a 21 percent decline. "CTFC simply doesn’t have enough cops on the beat," Durbin noted.
To address these shortcomings, Durbin introduced the Increasing Transparency and Accountability in Oil Prices Act of 2008, which:
*Authorizes new resources, including staff and better information technology, for the CFTC. These 100 new employees would immediately address the staffing shortfalls at the agency, and the technology funding would help the agency update woefully antiquated monitoring and analysis systems. "We could hire 100 people and put them to work tomorrow, given the inflow of trading volume," CFTC Chairman Walter Lukken said just two weeks ago. "We are doing the best we can in difficult circumstances."
* Improves transparency in market. CFTC currently has limited visibility of trades that take place on NYMEX, and very little visibility of over-the-counter trades -- such as trades from one hedge fund to another, or those that take place on ICE in London. Durbin’s legislation would close the so-called “London Loophole” by requiring all U.S. traders on oil futures markets to report transactions in a detailed manner to the CFTC. The bill also directs the CFTC to investigate the impact of these trades on the price of oil.
* Finally, the legislation would move the CFTC’s Inspector General’s office out from under the office of the agency’s chairman, giving it clear independence.
Durbin Promises More Market Oversight Staff and Computer Technology to CFTC to Fight Excessive Oil Speculation
After hearing Lukken's testimony today, Sen. Durbin released the following statement:
"Increasing evidence shows that the run-up in crude oil prices and gasoline is being driven by larger trader banks, pension and hedge funds. Speculation may have as much, if not more, to do with high gas prices than any Saudi sheik.
"The announcement at our hearing that CFTC it is now going to require more complete disclosure of speculative trading information is critical to stopping the excessive speculation and market manipulation that is driving up gasoline prices.
"Now, we need to give this agency the professionals and computer tools they need to stop any market manipulation. As chairman of the Appropriations Subcommittee which oversees the agency’s budget, I will work to secure a substantial increase in CFTC’s funding to make sure it has the resources to keep excessive oil speculation in check."
GoodBiz113's take: Now that gas has topped the $4-per-gallon tipping point in many U.S. markets, the oversight efforts of Sens. Dick Durbin and Tom Harkin are greatly needed and appreciated -- by consumers, small-business owners [e.g., farmers, independent truckers], air transport carriers, plus countless other entities. We applaud the senators for investigating the roles that CFTC and other entities play during this unprecedented run on oil and gas prices [oh, and the fattest paychecks that Big Oil CEOs have ever received], and for taking action to halt the excessive speculation and market manipulation that's driven those prices sky-high.
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