Washington — With their constituents’ anger on the rise over high gasoline prices, Connecticut lawmakers say Wall Street is to blame and want the Obama administration to take action against speculators.
“What we need is tough enforcement against speculation that is contributing to the crushing prices at the pump,” said Sen. Richard Blumenthal, D-Conn.
The futures market in oil and gasoline is supposed to help airlines, truckers and other big fuel users lock in prices for deliveries in the months ahead. But the futures market has attracted speculators, including some Wall Street firms like Goldman Sachs and JPMorgan. As big buys make the price of a stock go up, big investments in futures markets make the price of commodities rise.
On Wednesday Blumenthal joined fellow Democrats in introducing a bill that would set a 14-day deadline for the Commodity Futures Trading Commission to implement rules aimed at stopping excessive speculation in commodity markets
“That would take some of the froth out of the speculation,” said Rep. Joe Courtney, D-2nd District. “The cost of gasoline is being driven up by factors that have nothing to do with supply and demand.”
The Dodd-Frank Act, a law that aims to reform Wall Street, required the Commodity Futures Trading Commission more than a year ago to impose trading limits.
But the commission has delayed finalizing and implementing these rules because it says it has to collect more data about the commodities markets
Blumenthal’s legislation would give the commission “emergency powers” to allow it to act now.
Blumenthal also wrote a letter last week to U.S. Attorney General Eric Holder asking him to use a financial fraud task force to investigate speculation.
“If the attorney general of the United States … began issuing subpoenas and compelling testimony from people who know about speculation and potentially illegal manipulation, we would see gasoline prices come down drastically,” Blumenthal said.
With the average price of gasoline in Connecticut topping $4 a gallon, nearly all members of the state’s congressional delegation have joined the in escalating campaign against energy speculators. The sole exception is Rep. Jim Himes, whose 4th District is home to many Wall Street executives.
Himes said the solution to the volatility of gasoline prices is reducing oil imports by “creating an energy policy that invests in clean, renewable fuels and promotes conservation measures.”
Jim Ritterbusch, of Ritterbusch and Associates, an oil trading advising firm in Illinois, says the focus on speculators is misplaced.
“The market needs speculative activity,” he said. “It injects liquidity into the market.”
Ritterbusch said there’s not one particular factor driving gasoline prices higher, but a “myriad” of reasons. Those include a ban on buying oil from Iran, political unrest in other oil-producing nations like Yemen, Sudan and Syria and problems with production in the North Sea’s oil field.
“There’s also much more economic optimism,” he said. “And when the economy improves that drives up gasoline demand.”
Sen. Joe Lieberman, a Connecticut independent, disagrees. He said demand for oil is down, yet prices are high, an indication that something else is roiling the market.
“This extreme volatility suggests that non-market factors, such as speculation, are having a greater influence on volatile oil price movements,” Lieberman said. “The Commodity Futures Trading Commission should act to eliminate the excess speculation.”
Reps. John Larson, D-1st District, and Chris Murphy, D-5th District, held a news conference in Hartford last week to lay out their solutions for the gasoline spike.
Cracking down on speculators was one of them.
“Abusive Wall Street oil speculation based on world events is causing significant hardships for Americans at the pump and it needs to stop,” Larson said.
Rep. Rosa DeLauro, D-3rd District, also wants the CFTC to crack down on speculators .
But she’s lobbying the administration for another fix, as well.
With some of her House colleagues, DeLauro sent a letter to President Obama last week asking the president to release oil from the Strategic Petroleum Reserve to cool off gas prices.
The petroleum reserve is a series of salt caverns on the Gulf Coast that holds 727 million barrels of oil. Obama has said the reserve’s purpose is to save the nation from an oil crisis — not to try to influence gasoline prices.
Gene Guilford, president of the Independent Connecticut Petroleum Association, a group that represents gas stations and heating oil companies, thinks only those who take deliveries of oil and gas — that is, the customers who use the fuel — should be allowed to invest in the futures market.
“I don’t think what happened in the last 90 days is rational,” he said.
Guilford said the “bubble” of speculation will burst at some time, driving down gas prices.
Ritterbusch said the market is likely to correct itself before Washington can take any action.
He predicted gasoline prices will continue to rise into next month, perhaps to $4.25 a gallon nationally, then begin to sink.
“Higher prices ultimately choke off demand,” he said.