The run-up to $140 per barrel crude oil in 2008 led many in Congress and throughout the nation to question the effect 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.
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 for retailers.
NACS is a member of the CMOC and joined other industry organizations in supporting new regulatory oversight of commodities futures transactions. NACS’ specific objective was to ensure there was adequate transparency in the market to prevent manipulation and that regulations protect the rights of bona fide hedgers to participate in the market.
On July 21, 2010, President Obama signed into law the Wall Street Reform and Consumer Protection Act. This new law empowers the Commodity Futures Trading Commission (CFTC) with authority over off-exchange (over-the-counter) derivatives markets; requires across-the-board transparency for all derivatives; requires derivatives be exchange-traded or cleared with real-time reporting; provides a narrowly-defined hedge exemption for legitimate commercial end-users to clearing and capital requirements for derivatives; provides the CFTC with additional authority to prosecute fraud and manipulation when it occurs; requires banks to "spin-off” their energy swaps trading operations into a separately capitalized entity that cannot access federally insured deposits; empowers the CFTC to set speculation limits in all markets, and requires them to set aggregate speculation limits across all markets; prohibits “insider trading” in commodity futures, options and swaps on government information that is not yet public or otherwise made available to the trading community; and makes the CFTC Energy Markets Advisory Committee (on which several groups of CMOC serve) permanent.