The White House unveiled a slate of legislative proposals on Tuesday aimed at cracking down on oil market manipulation, as the administration attempts to combat high gasoline prices.
The plan calls for a tenfold increase in the maximum civil and criminal penalties that can be applied for the manipulation of oil futures markets, the White House said.
The Obama administration is also calling for Congress to provide more funding to the Commodity Futures Trading Commission to increase surveillance and enforcement staff for oil futures market trading. The proposal also calls on the CFTC to be given the power to raise margin requirements in oil futures markets.
Editor's Note: Obama’s Economic ‘Fix’ is In . . .
The rising cost of oil and fuel in the world's top consumer has become a central focus of the U.S. presidential election this year.
The following are comments from oil analysts, politicians and traders on the Obama proposal.
AMY JAFFE, ENERGY POLICY EXPERT AT RICE UNIVERSITY'S BAKER INSTITUTE IN HOUSTON:
On expanding access to CFTC data: "People like me cannot analyze whether people are manipulating the market or not because they keep the data secret. Their whole rationale for keeping the data secret was that people need their commercial advantage — but people who trade know what everyone's positions are. It's the public who doesn't know.
"Given the financial climate experience we had in 2007 and 2008, wouldn't you want to know whether your bank is really long in the futures market or not?
"It's important in managing a financial crisis to know who is in the market or who isn't if suddenly there is a crisis in oil that is going to take down the banks."
On giving the CFTC power to change margin requirements: "The thing about margin requirements is that when markets are very volatile and they afraid about banks buying too much oil on leverage, it gives them a tool.
"With margin calls, you have to have the political will to use it. Once they give them that power, would a politician actually have the guts to use it? If you use it when we are already in a horrible crisis, it is too late."
MICHAEL WITTNER, GLOBAL HEAD OF OIL RESEARCH AT SOCIETE GENERALE:
"I think this is unlikely to pass before November. Obviously we're in an election year so it's very political, but the only scenario I can see it possibly passing under before then is if there's a huge spike as a result of a major supply disruption from Iran. That's the only way I see it getting enough bi-partisan support. Otherwise I'd expect there to be some push-back from the Republicans.
"The other point is the CFTC already works very closely with the exchanges, and I'd imagine they would continue to do so if they were given powers over oil margin requirements. They're still going to rely on the exchanges expertise."
CARL LARRY, PRESIDENT, OIL OUTLOOKS LLC, NEW YORK:
"There is little market manipulation in the oil markets and this is an easy way for him (Obama) to break it to the American people that oil is cheap in America.
"We have some of the cheapest oil prices in the world. They can't change margins too much because that undermines free market principles.
"If they raise margins on (speculators) and not on commercials, liquidity dries up and prices go higher. If they raise hedging margins, then capital that would be used to produce cheaper oil will go to maintain margins and oil goes up."
JAY LEVINE, BROKER, ENERJAY, LLC, PORTLAND, MAINE:
"Any 'outside' intervention (by the government) usually doesn't last or alter the picture that was in place before any threat of intervention. The market's going to do what they were doing or going to do before. With that said, the intervention throws a monkey wrench in the short-term picture and typically only adds to market direction uncertainty.
"Raising margins is the easiest way the exchange (vis-à-vis the government) makes it harder for the small speculator to trade, thus removing the small speculator, not really the larger ones. Liquidity might become a greater issue with fewer small players in the market. Reduced liquidity often means greater volatility, the exact opposite of its purpose."
JOHN KILDUFF, PARTNER AT AGAIN CAPITAL LLC, NEW YORK:
"The call for much higher margin requirements has been a rallying cry for the those who prefer to blame the price discovery mechanism for the underlying conditions that produce the prices being paid.
"Oil supplies are routinely under threat from governments that control the spigot and disaffected populations that want a bigger piece of the rock. Demand has gone nowhere but up.
"Having said that, we look forward to seeing the natural gas market speculators feted at the White House soon for their work in reducing prices upward of 90 percent in several short years.
"Regarding manipulation, it is serious and damages the reputation of the markets. The penalties should be severe."
Editor's Note: Obama’s Economic ‘Fix’ is In . . .
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