Turning the tables on Republicans, who have been relentless in their attacks on the administration's energy policies, President Obama last week called on Congress to provide funding for his five-part plan to combat manipulation, fraud and excessive speculation in the energy markets. While the oil market is the primary target of the president's plan, the administration effort has implications for natural gas traders and contracts.
The White House called on Congress to act immediately and pass the package of measures to "deter illegal behavior and hold accountable those who manipulate markets for financial gain at the expense of consumers."
Speaking from the Rose Garden, Obama said, "We can't afford a situation where some speculators can reap millions, while millions of American families get the short end of the stick."
Obama urged Congress to immediately approve funding for a six-fold increase in the surveillance and enforcement staff for oil futures market trading at the Commodity Futures Trading Commission (CFTC). He also requested that Congress provide the Commission funding for critical information technology upgrades to strengthen monitoring of energy market activities. These two requests would require Congress to hike the CFTC's current fiscal year budget by $52 million.
In addition, the president proposed raising the CFTC's ability to impose criminal and civil penalties for manipulation of key energy markets to $10 million per violation from $1 million. A criminal violation could also carry a prison term of 10 years.
Congress was asked to give the CFTC authority to increase margin requirements in futures markets. Specifically, he proposed that Congress act immediately to give the CFTC authority to direct exchanges to raise margin requirements to address increased price volatility or prevent excessive speculation or manipulation.
And the White House said it was taking steps to expand its access to CFTC data to better understand trends in energy markets.
"I support President Obama's five-part plan, which strengthens the CFTC's existing tools to be effective cops on the best in the energy markets," said CFTC Chairman Gary Gensler. The president's plan could help to kick-start efforts, which have been long stalled, to get speculative position limits in place.
The CFTC approved its position limits rule to curb speculation in commodity futures contracts and economically equivalent swaps last October (see NGI, Oct. 24, 2011). However, the Commission has yet to implement the rule. The rule, which were mandated under Dodd-Frank, sets limits on the number of contracts a trader can hold in certain commodities, such as oil and natural gas.
Gensler joined the president in the Rose Garden, along with Attorney General Eric Holder, Treasury Secretary Timothy Geithner and Federal Trade Commission Chairman Jon Leibowitz.
CME Group Inc., which owns Nymex and other exchanges, cautioned the Obama administration not to confuse manipulation with speculation. "CME Group agrees that manipulation is detrimental to markets and should be vigorously policed, as is currently being done. However, we caution against mistakenly categorizing speculation as a form of manipulation.
"Market-makers and speculators serve an important function in the market: allowing energy users and producers to manage oil price risk and providing the necessary liquidity to ensure effective price discovery and more efficient transfer of price risk."
CME Group further said the administration's proposal to use margin requirements to control cash prices was "misplaced." The administration "must recognize that exchanges, as the operators of regulated energy markets, are in the best position to monitor volatility and manage margin requirements," rather than the CFTC, the CME said.
As expected, the president's plan did not receive a warm reception from Republicans in Congress, who have been trying to weaken regulators' restrictions on Wall Street rather than strengthen them, as the president's plan would do. Given that few controversial items have made it through the current congress, the president's announcement probably has little more than rhetorical value at this point in a presidential election year.
"President Obama is once again trying to change the subject and blame something other than his failed energy policies for the skyrocketing price of gasoline. His solution is more regulation, when in fact it's his regulations that are stifling production," said Rep. Doc Hastings (R-WA), chairman of the House Natural Resources Committee.
The Republicans did more than react to the president's plan. The House Energy and Power Subcommittee last Tuesday voted out two bills that could clip the administration's wings with respect to imposing new regulations on oil and gas. One bill, the Gasoline Regulations Act of 2012, would bar the Environmental Protection Agency (EPA) from finalizing the rule on air emission standards for the oil and gas industry until an analysis has been conducted on the impact of the rules on gasoline and diesel fuel prices.
The EPA last Wednesday released its final rule to reduce harmful air pollution from oil and gas production. It extended the deadline for full compliance from 60 days to two-and-a-half years -- 2015 -- which officials said was a "reasonable" time (see related story).
The second House measure, the Strategic Energy Protection Act of 2012, would expand exploration, development and production of oil and gas on public lands leased by producers in the event the president calls for a drawdown of oil reserves from the Strategic Petroleum Reserve. And on Thursday (April 26) a subcommittee of the House Natural Resources Committee plans to consider several bills aimed at speeding up the leasing and permitting process for oil and gas production on federal lands.
Unlike their Republican counterparts, Democrats "stand ready to act on [the president's] proposals now," said Democratic Leader Nancy Pelosi of California. "Republicans have consistently sought to defang and defund federal efforts to crack down on excessive speculation in energy markets. They have stood on the side of those on Wall Street who profiteer from excessive speculation."
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