U.S. Senator Tom Udall and 69 other members of Congress have called on federal regulators to address oil speculation contributing to a rise in the price of gasoline to more than $3.50 a gallon in New Mexico. In a letter sent to the Commodity Futures Trading Commission on Monday, lawmakers requested that new trading limits be put in place, as mandated by Congress in the 2010 Wall Street reform law. Limits were supposed to be put in place by the commission before Jan. 17, 2011.
“We are disappointed that, more than a year later, the commission has not fulfilled this important regulatory duty,” the lawmakers said in the letter. “It is one of your primary duties – indeed, perhaps your most important – to ensure that the prices Americans pay for gasoline and heating oil are fair, and that the markets … operate free from fraud, abuse, and manipulation.”
The recent rise in oil prices comes as the U.S. has increased its oil production three years in a row for the first time since 1985. U.S. drilling activity is at the highest level in at least 24 years, with over 1,000 rigs drilling for oil. New Mexico oil production is also at a 12-year high. U.S. foreign oil dependence is now under 50 percent, down from 60 percent in 2005. As a result, the supply of U.S. oil and gasoline is greater today than it was three years ago, yet, oil prices are up. While this is partly due to rising global demand, especially in Asia, and ongoing Middle East conflict and tensions, the recent price increases have been significantlyworsened by speculative trading.
“There has been a major debate over the last several years as to whether spikes in oil prices are caused entirely by the fundamentals of supply and demand or whether excessive speculation in the oil futures market is playing a major role,” wrote the lawmakers. “It is clear to us that debate has ended. Exxon Mobil, Goldman Sachs, the Saudi Arabian government, the American Trucking Association, Delta Airlines, the Petroleum Marketers Association of America, and even a report last year from the St. Louis Federal Reserve have all indicated that excessive oil speculation significantly increases oil and gasoline prices.”
According to Forbes magazine, the investment bank Goldman Sachs believes that oil speculation is the cause of more than 50 cents in the current price of gasoline.
Under the 2010 Wall Street reform law, the new trading limits apply to financial speculators who profit simply by trading electronic or paper oil contracts, not legitimate commercial producers or consumers of oil. Wall Street firms are fighting the new limits passed by Congress before the Commission and in federal court.
The text of the letter is available online here.