The run-up to $140 per barrel crude oil in 2008 led many in Congress and throughout the nation to question the impact of speculative investment on commodities markets and to consider whether to increase regulations governing such behavior. A broad coalition of interested parties formed the Commodities Market Oversight Coalition (CMOC), which is advocating in favor of additional regulatory requirements.
Two bills have been introduced in the current Congress:
- H.R. 977, introduced by Rep. Collin Peterson (D-MN), establishes a number of provisions, including specific compliance requirements for foreign boards of trade, additional reporting requirements, position limits on non-commercial traders, and mandatory clearing of over the counter trades through a regulated clearing organization. CMOC endorses this legislation, but has expressed concern with its failure to properly aggregate non-commercial positions when determining appropriate limits and for not providing an official advisory committee of stakeholders to provide input regarding what would constitute appropriate limits on positions.
- S. 272, introduced by Sen. Tom Harkin (D-IA), has had no legislative action to date. The bill would abolish exempt foreign boards of trade, establish additional reporting requirements, require all futures contracts to trade on a regulated exchange, but includes no provisions establishing position limits.
Crude oil is the predominant ingredient in the manufacture of gasoline and diesel fuel. In 2008, according to the U.S. Energy Information Administration crude oil was responsible for on average 70 percent of the retail price of gasoline. The rapid increase in crude oil prices carried with it an escalation in wholesale prices that many retailers were unable to absorb or pass through to consumers in a timely manner. The consequences were reduced margins and economic difficulties for retailers. In addition, elevated retail prices often result in customers blaming retailers and politicians seeking to punish retailers for alleged “price gouging.”
If indeed non-market traders are amassing positions in the crude oil futures market of sufficient size to manipulate the direction of the market, this can have negative consequences of retailers.
In April, the NACS Board of Directors officially endorsed H.R. 977 and more fully engaged with the CMOC in support of the legislation. The Board is most concerned with ensuring adequate transparency in the market to prevent manipulation.
The CMOC has taken the lead in pushing for legislative and regulatory protections of the commodities futures market. The New England Fuel Institute has assumed responsibility for running the coalition, which includes petroleum marketers, airlines, consumer groups, public interest advocates and a wide variety of others.
When the House Agriculture Committee approved the Peterson bill on February 12, 2009, House Financial Services Committee Chairman Barney Frank (D-MA) expressed opposition, claiming his committee had primary jurisdiction for financial services issues and that the Peterson bill was inappropriate. He suggested a more systemic approach was necessary. This opposition substantially slowed what had been a very fast moving legislative effort.
On June 26, the House of Representatives passed H.R. 2425, the American Clean Energy and Security Act. This bill included language granting the Commodity Futures Trading Commission (CFTC) authority over Over-the-Counter (OTC) markets; regulating foreign-based entities trading U.S. commodities in the U.S.; closing the swaps loophole and requiring energy trades to comply with the Commodity Exchange Act; banning naked credit default swaps; setting aggregate position limits for energy speculators across all markets; empowering the CFTC to implement an independent funding stream for oversight of commodity markets; and subjecting carbon to CFTC regulation.