Facing political pressure to drive down near-record prices for gasoline. President Barack Obama wants to take action against energy traders and speculators, who are potentially earning record profits from the upward movement in oil prices, by “putting more cops on the beat.”
Obama wants Congress to strengthen federal supervision of oil markets and empower regulators to increase the amount of money energy traders are required to put behind their transactions. Energy analysts contend that the current system makes it far too easy for speculators to manipulate prices with little downside risk.
“Even if we drilled every square inch of this country right now, we’d still have to rely disproportionately on other countries for their oil. That means we pay more at the pump every time there’s instability in the Middle East, or growing demand in countries like China and India,” Obama said during remarks in the White House Rose Garden.
“It’s those global trends that are affecting gas prices. So even as we’re tackling issues of supply and demand, even as we’re looking at the long-term in terms of how we can structurally make ourselves less reliant on foreign oil, we still need to work extra hard to protect consumers from factors that should not affect the price of a barrel of oil,” he added.
The President insisted his administration is “doing everything we can to ensure that an irresponsible few aren’t able to hurt consumers by illegally manipulating or rigging the energy markets for their own gain.” But industry watchers question whether the White House – or regulators have much power to rein in speculation that could be boosting oil prices.
There are a variety of factors impacting oil prices, according to experts:
- Growing overseas demand, notably from China and India, two of the world’s fastest-growing economies;
- Concerns about the possibility of supply disruptions triggered by the debate over Iran’s nuclear program;
- Other Mideast problems, including the growing threat of civil war in Syria.
But there are numerous ways that speculators also can nudge oil prices higher. For one thing, they are required to back their bids on oil contracts with only a fraction of the actual value of those deals. This encourages upward speculation with relatively little risk should prices actually fall, government officials have warned.
“We can’t afford a situation where speculators artificially manipulate markets by buying up oil, creating the perception of a shortage, and driving prices higher — only to flip the oil for a quick profit,” said the President, adding that, “We can’t afford a situation where some speculators can reap millions, while millions of American families get the short end of the stick. That’s not the way the market should work.
In his speech, he pointed to the way the market was manipulated by now bankrupt Texas energy trader Enron, which reaped billions in its heyday and even helped trigger rolling electric blackouts across California as energy prices surged.
The President said he has asked Attorney General Eric Holder to work with Chairman Leibowitz of the Federal Trade Commission, Chairman Gensler of the Commodity Futures Trading Commission, and other enforcement agencies “to make sure that acts of manipulation, fraud or other illegal activity are not behind increases in the price that consumers pay at the pump.”
He also called on Congress to provide immediate funding “to put more cops ont he beat to monitor activity in energy markets. This funding would also upgrade technology so that our surveillance and enforcement officers aren’t hamstrung by older and less sophisticated tools than the ones that traders are using.”
Whether he’ll get that assistance remains to be seen, however. Republicans are expected to argue the deficit makes any expansion of enforcement, like the President wants, next to impossible. But by rejecting enforcement efforts the GOP faces the possibility that the Democrats will shift blame to them for failing to rein in rising gas prices.
Paul A. Eisenstein contributed to this report.