Sen. Barack Obama, the presumptive Democratic candidate for president, Sunday outlined a four-point plan to crack down on the “excessive” energy speculation that he claims is driving up the prices of crude oil, gasoline and other energy commodities.

If elected in November, Obama said he would go beyond the changes included in the recently passed farm reauthorization bill and fully close the Enron loophole by requiring that U.S. energy futures trade only on regulated exchanges. The loophole, which was passed by Congress in 2000 at the urging of Enron lobbyists, exempted large electronic trading platforms from the the full oversight of the Commodity Futures Trading Commission (CFTC).

The farm bill, which became law on June 18, gave the CFTC the authority to bring antifraud actions in off-exchange futures transactions, which includes exempt energy commodities transactions. But critics argue that the measure could have gone further to regulate the over-the-counter market in energy futures, a Capitol Hill aide said.

Obama also advocated new, disaggregated data on index fund and other passive investments to increase transparency and oversight of the growing number of institutional investors participating in the commodities futures markets. And he said he would support legislation directing the CFTC to investigate whether additional regulation is needed to eliminate excessive speculation in U.S. commodities markets, including higher margin requirements and position limits for institutional investors.

Obama said he would limit the price impacts of excessive speculation by preventing traders of U.S. crude oil from routing their transactions through offshore markets in order to evade speculation limits and also impose reporting requirements. He reported that about 30% of U.S. oil futures fly below the regulatory radar because they are transacted on a U.S. exchange that works through a subsidiary in London.

He also pledged to work through the International Organization of Securities Commissioners and other international organizations to coordinate regulations across countries. This would help to ensure that as the United States strengthens its oversight and transparency in domestic exchanges, these efforts are not undermined by overseas trading subject to lax regulations, Obama said.

He further urged the Federal Trade Commission to immediately expedite its investigation into market manipulation, including in the oil futures markets. And he called on the Department of Justice to open an investigation into whether energy traders have been engaged in illegal activities that have helped drive up the price of oil and other commodities.

A number of other senators and congressmen are jumping on the growing bandwagon to clamp down on speculation in the energy markets. On Friday Rep. Bart Stupak (D-MI) introduced revised legislation that he said would “seal off not just the Enron loophole, but also the other loopholes that have allowed energy traders to evade federal oversight and realize excessive profits.”

The measure addresses bilateral trades, foreign boards of trade, swaps and bona fide hedging exemptions. Bilateral trades “are made between two individuals and are not negotiated on a trading market. Because the farm bill only addressed electronic exchanges, these bilateral trades remain in the dark. By dark I mean no federal oversight and no transparency as to these trades,” Stupak said.

“Foreign markets with little government oversight are being used to trade U.S. energy commodities…Because the farm bill did not address foreign boards of trade, Congress needs to make foreign exchanges trading commodities with a delivery point in the United States subject to U.S. regulation.”

“Eighty-five percent of the futures purchases tied to commodity index speculation comes through ‘swap dealers,’ which are investment banks that serve as intermediaries for the pension funds and sovereign wealth funds. By closing the swaps loophole, we can eliminate a major avenue energy speculators use to avoid oversight.”

As for bona fide hedging exemptions, “a growing number of speculators have taken advantage of an exemption that allows businesses ‘to hedge their legitimate anticipated business needs.’ My bill would clarify that ‘legitimate anticipated business needs’ does not mean financial speculators,” Stupak said.

Sen. Joseph Lieberman (I-CT), chairman of the Homeland Security and Governmental Affairs Committee, and Sen. Susan Collins of Maine, the panel’s ranking Republican, said they plan to introduce legislation to curb excessive speculation in the commodity markets after the July Fourth recess.

Sen. Byron Dorgan (D-ND) is expected to offer a bill to require higher margin requirements on the oil futures market to “wring the speculation out of the market,” he said.

“We anticipate the number of legislative proposals to address ‘speculation’ in the energy markets to multiply dramatically this week,” said energy analysts Christine Tezak and K. Whitney Stanco of Stanford Group Co. “Some are likely to be strict — we’ve heard suggested a complete ban of nonphysical players from the futures market — and others more focused on facilitating the oversight provided by the Commodity Futures Trading Commission by seeking more data and ramping up the agency’s budget,” they noted.

“It is not clear yet which of all of these introduced and yet-to-be-conceived provisions will wind up being formally considered before the House and Senate.” One thing appears certain — that these issues will not be addressed in the energy package (H.R 6052), which the House is expected to take up this week, the analysts said (see Daily GPI, June 23).

The package of energy proposals seek to, among other things, assess a fee on energy companies for leases that are not being drilled. The fee would escalate if the leases go unused over the course of several years, reaching as much as $50 an acre each year. Other House measures would seek to tackle price gouging in the oil industry, address price manipulation in energy markets and help to offset transit fares.

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