President Barack Obama urged Congress to bolster federal supervision of oil markets, including bigger penalties for market manipulation and greater power for regulators to increase the amount of money that traders must put up to back their energy bets.
Obama asked Congress to fund a six-fold increase for surveillance and enforcement staff at the Commodity Futures Trading Commission to put “more cops on the beat” overseeing oil markets.
He is seeking to empower the CFTC to raise margin requirements for traders’ oil positions and also asked lawmakers to raise civil and criminal penalties for businesses that are guilty of market manipulation to $10 million from $1 million. The plan would cost $52 million.
“Rising gas prices means a rough ride for a lot of families” Obama said in remarks in the White House Rose Garden today. “When gas prices go up it’s like an additional tax that comes right out of your pocket.”
Still, he added, “There are no quick fixes to this problem.”
Gasoline prices and their impact on the economy have emerged as an issue in the 2012 presidential campaign. Obama has been seeking to set out his differences with Republicans. Mitt Romney, the likely Republican nominee, has accused the Obama administration of thwarting domestic oil production through regulations.
Republicans control the House of Representatives and have enough votes in the Senate to block legislation, make prospects for passage of Obama’s proposal dim.
House Speaker John Boehner, who endorsed Romney today, said the government already has all the tools it needs in the CFTC and the Securities and Exchange Commission if Obama believes the market is being manipulated.
“Instead of just another political gimmick, why doesn’t he put his administration to work to get to the bottom of it?” the Ohio Republican said at a news conference in Washington.
Phil Flynn, an analyst at PFGBest in Chicago, said the move would have little impact on energy prices and may force some out of the U.S. market.
“To blame speculators for reflecting the fundamentals of the market is far stretched,” Flynn said. “If they raise the margins too high, it’s going to make the market less transparent, it’s going to force money overseas.”
The retail price for a gallon of regular gasoline was $3.904 as of yesterday, according to the American Automobile Association’s daily survey. That’s up from $3.833 a year ago. Prices may have peaked. Futures for May delivery fell for the third day to $3.2497 a gallon at 9:46 a.m. on the New York Mercantile Exchange.
Obama has been discussing international oil markets with counterparts in the Group of Eight, whose leaders he will host at a Camp David summit May 18-19.
Last week, the president discussed “tightness” in the global oil market in a videoconference with French President Nicolas Sarkozy as the U.S. and its allies continue to monitor the economic impact of energy costs.
White House press secretary Jay Carney declined to say whether the two leaders discussed using strategic reserves to hold down oil prices. Officials in France and the U.K. said last month that the allies have talked about whether to tap crude stockpiles. The U.S. has repeatedly said that no decision has been made.
Obama repeated today that events affecting the global market are the main reason for the rise in energy prices, including growth in emerging economies such as China and India and tension in the Middle East.
The U.S. is leading an effort to force Iran to end development work that may lead to building a nuclear weapon. Further U.S. sanctions on Iran are set to take effect by the end of June, about the same time a European Union embargo of Iranian oil kicks in. Iran is the second-largest producer in the Organization of Petroleum Exporting Countries.
Crude oil for May delivery advanced $1.74, or 1.7 percent, to $104.67 a barrel at 9:44 a.m. on the New York Mercantile Exchange. Prices are up 5.9 percent this year.
John Kilduff, a partner at Again Capital LLC, a New York- based hedge fund that focuses on energy, said the CFTC “certainly needs more funding” given what they been asked to do to oversee markets. Still, he said, it likely would have little impact on energy costs.
“In commodities, if you want to see lower prices, you have to make more of it or use less of it,” Kilduff said.
© Copyright 2023 Bloomberg News. All rights reserved.