GOP admits speculation is helping boost oil prices, moves to gut speculation watchdog anyway

The Commodity Futures Trading Commission (CFTC) “” which is charged with policing the country’s futures markets “” said last week that speculation on energy futures, including oil, is at an all-time high. The Dodd-Frank financial reform law gave the CFTC the ability to issue limits on oil speculation, but agency missed the deadline for implementing the new rules, partly due to reluctance from conservative members of the CFTC board (which is a problem President Obama can address in June).

But even if the CFTC were stepping up, budget cuts favored by House Republicans would render market oversight vastly more difficult, as WonkRoom explains.

H.R. 1, the House Republican-approved spending plan for the remainder of 2011, cuts the CFTC budget by nearly one-third, which would force the agency to lay off nearly 30 percent of its staff. CFTC Chairman Gary Gensler has said that if the GOP budget cuts were implemented, “We would not be able to police“¦or ensure transparent markets in futures or swaps.”

And Republicans are forging ahead with these budget cuts even though they agree that oil speculation is increasing prices:

Rep. Ed Whitfield (R-Ky.), a senior House Energy and Commerce Committee member, recalled prior oil-speculation hearings and said “there was no question that that had some impact” on the 2008 uptick. “I think there is a combination of reasons for the recent spike,” he said in an interview yesterday.

Rep. Mike Simpson (R-Idaho), chairman of the House Appropriations subpanel in charge of EPA and the Interior Department, said policies at the departments he oversees play a role in rising prices but agreed that speculation does as well. “Traders look out and see what’s about to potentially happen, so it has to do with speculation,” Simpson said in an interview. “That adds to the overall equation.”

Both Whitfield and Simpson voted for the budget cuts in H.R. 1. Rep. Walter Jones (R-NC), however, voted against H.R. 1 (one of just three Republicans to do so) and sent a letter to the CFTC asking that it enforce the speculation limits set out in Dodd-Frank. “Most oil market experts agree that excessive, unnecessary speculation by Wall Street traders is part of the problem,” Jones wrote. “Further delay by the commission leaves consumers and markets exposed to manipulation at a time when this nation can least afford it.”

Gensler appeared before a House appropriations subcommittee today to request increased funding for the CFTC, but the subcommittee’s chairman, Rep. Jack Kingston (R., Ga.), was unmoved.

A WonkRoom cross-post.

12 Responses to GOP admits speculation is helping boost oil prices, moves to gut speculation watchdog anyway

  1. MarkF says:

    would it possible to speculate, if the power was supplied by solar wind geothermal?

    or would using renewable energy eliminate the speculation?

    money made on speculation is of no benefit to society. shouldn’t a commercial transaction, benefit more than one side?

    It’s really a form of uncontrolled taxation under another name.

    Didn’t currency speculation bring down nations during the last years of the 20th century?

  2. Zetetic says:

    Since member of congress are essentially immune from insider trading allegations, they probably want to cut the agency in order to help out their buddies that give them some “hot tips”.

    Reform Groups Urge Congress to Prohibit ‘Congressional Insider Trading’

  3. Michael says:

    Some people might use this to claim that oil prices aren’t high because of problems with supply and thus we don’t really have any worries about “Peak Oil” or the like. Because global oil production has lagged consumption/population increase in the last few years (it would be much worse if not for unconventional sources, including ethanol).

  4. Jim Groom says:

    No surprise here. These are the same folks who could not wait to begin the use of styrofoam in the house lunch room again. Styrofoam..really?
    Are they really so afraid of the modern world and hold a total disregard for the environment? Yeah I know, what a stupid question.

  5. S. Majumder says:

    Another layer of BS to hide the simple fact that current oil based economy is way off balance. New jargons, new policies(!), and some more eyewash. They sure hope to fool fundamental laws of nature.

  6. Villabolo says:

    Conservative Americans are a bunch of zombies who elect vampires.

  7. Mulga Mumblebrain says:

    This sort of speculation is the life blood of the most parasitic elements of the capitalist caste. Investment in mundane activities like production and trade does not produce a rate of return sufficient to slake their literally insatiable greed. They, after all, have eleven or twelve ‘homes’ each with its ‘infinity pool’, a fleet of cars and ‘trophy wife no. 4’ to keep maintained. Don’t forget, they’re in an ego-driven weapons race of conspicuous over-consumption with the other plutocrats.
    So all the trillions gifted the rich from the rest of humanity by the Right’s victory these last forty years or so, ends up seeking the highest possible return. A lot, a prodigious amount, goes shady in drug trafficking, arms trading, human organ trafficking, ‘blood diamonds’ etc, but assets trading and blowing up speculative bubbles is a ‘legitimate’ alternative. When this goes awry, as with sub-prime mortgages and the ‘asset securitisation’ bubble cum securities fraud kerfuffle, well the political employees in Congress and the White House will see things are sorted out and the bill presented to the ‘little people’.Commodities speculation is mostly carried out by rich dacoits, through wealth funds, hedge funds, and the Big Banksters, and Congressbots are mostly quite rich, so there’s undoubtedly as much raw self-interest as class loyalty working here.
    As for Obama ‘reforming’ the CFTC, may I predict that he will appoint someone with the ‘Right’ credentials, if you know what I mean, in the name of ‘reaching out’ to the Republicans, in a ‘bipartisan’ move that will leave his ever loyal acolytes once again ‘mystified’. That’s the word for his Presidency, I’d say-mystifying, or perhaps mystification.

  8. riverat says:

    Republicans are more interested in trying to make Obama look bad so he’s a one term President than they are in doing anything pragmatic. Their ideology is more important to them than is reality.

  9. john jansen says:

    Speculators get blamed for driving the price of commodities higher but never get credit when the process works in the other direction. No one decried speculators who shorted oil at the highs in 2008 and then accelerated the move lower in price by building bigger positions as the price careened lower. Oil is higher because of heightened geopolitical risk in the Middle East and because the FOMC is pursuing an expansionary monetary policy which works to the benefit those who speculate on a price rise. And what commenters here fail to note is that speculators can also be spectacularly wrong. They take risk and the market rewards or punishes them for the choice.

  10. Mulga Mumblebrain says:

    john jansen #9, if I might be so bold-cobblers! Speculators are parasites and gamblers. They exacerbate volatility in a greed-driven race to extract the highest possible rents from their nefarious activities. Very low prices are just as destructive as high, particularly in regard to hydrocarbons, because they delay or de-rail energy efficiency measures and energy conservation. They take risk, but they also ensure that spectacular losses are ‘socialised’ by their political stooges as with the GFC. Real, productive, business does not need great swings back and forth organised by highly leveraged financial grifters seeking to live off the contrived speculative froth on the top of real economic activity. Emissions trading will be a similar travesty, all speculation, manipulation and contrived volatility, to no-one’s benefit but the rent-seekers and speculators.

  11. john jansen says:


    Thanks for your intelligent response. Regarding your comment on the destructive nature of low prices, then you should be ecstatic with the current high level. It will reduce demand and carbon emissions. So you win twice. Either demand is reduced or the nefarious speculators are crushed when they are wrong and the price plummets. i disagree with large chunks of what is written here but the commentary is intelligent and polite. All the best. JJ

  12. Zetetic says:

    @ john jansen #11:
    While you make a decent point about speculators short-selling, that is IMO somewhat countered by the fact that in 2008 that the rise in oil prices was caused at least in part by speculation. It seems that using short-selling as justification for speculation is a bit like justifying a problem as it’s own cure.

    Personally, I’m less concerned about speculators than I am about the world’s over-dependence on oil. This is of course what allows the speculators to make huge profits from the oil market in the first place. The world being less dependent on oil will do far more to stabilize the all of the markets (for nearly every good, not just oil) than anything that any speculator could ever do. Not to mention increase global security, reduce pollution, and reduce global warming. Although I suppose such a situation would be less profitable (but less risky) for speculators as well.