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Klobuchar bill targets oil speculators as gas prices near $4 a gallon

A pump showing the regular self-serve gas price at over $5
REUTERS/Lucy Nicholson
A pump showing the regular self-serve gas price at over $5 is seen in Los Angeles on March 7.

A nascent jobs recovery is starting to boost optimism among Americans, but persistently high gas prices could greatly dampen business growth in the coming months.

That's why politicians are stepping up their efforts to clamp down on oil speculators operating in commodity markets.

U.S. Sen. Amy Klobuchar, D-Minn., announced this week that she is co-sponsoring legislation to limit the activities of individual speculators.

Her colleague, Sen. Bernie Sanders, a Vermont independent, described the problem in a nutshell.

In a recent commentary, he wrote: "A decade ago, speculators controlled only about 30 percent of the oil futures market. Today, Wall Street speculators control nearly 80 percent of this market. Many of those buying and selling oil in the commodity markets will never use a drop of this oil. They are not airlines or trucking companies who will use the fuel in the future. The only function of the speculators in this process is to make as much money as they can, as quickly as they can."

Sanders and Klobuchar are among dozens of lawmakers who wrote to the Commodity Futures Trading Commission (CFTC) earlier this month to implore the body to use position limits to address excessive speculation.

Klobuchar said in a Thursday news release that she's carried her message of cracking down on speculators directly to CFTC Chairman Gary Gensler.

Leaning on commission

The politicians are leaning on the Trading Commission because there is a disconnect between the law of supply and demand and the price that consumers are paying at gas pumps.

In the letter to the Trading Commission, Sanders and his peers wrote that the supply of oil and gas is "higher today than it was three years ago, when the national average price for a gallon of gasoline was just $1.90."  The Energy Information Administration reported Wednesday that the average price of regular gas this week was $3.83 per gallon in the United States. That was 26 cents higher than a year ago.

Airlines for America, the industry trade group for the nation's largest airlines, is pushing Washington's politicians to curb speculation in the oil futures market. Fuel is the industry's No. 1 expense and many airlines have restructured their businesses to cope with relatively high fuel prices. But many consumers don't have the ability to absorb substantially more fare increases if oil prices continue on an upward spiral. So the airlines are lobbying to gain some restrictions on speculators.

In a Gallup poll conducted in early March, Americans, on average, indicated they expect gas prices to rise to $4.36 a gallon. Nearly half of those polled expect gas in their area to break $4 a gallon.

Election issue

The price of gas could be a more potent threat to President Obama's re-election than the campaign the GOP nominee will wage against the president.

Become a sustaining member today

While many small business owners abhor what they perceive to be excessive government regulation on their companies, the oil price issue might be viewed through a different lens.

High oil and gas prices could become a key issue on Main Street.

Businesses are spending more money to cover their fuel costs, yet it's tough to pass all of their extra expenses along to consumers who have less discretionary money. That dilemma could result in a bad financial squeeze for small businesses.

Big corporations, pressured to meet shareholder expectations on Wall Street, may cope with higher gas prices by slowing their rate of new hires.

High gas prices already are causing financial pain among consumers and businesses. So the line of politicians taking aim at oil speculators will grow as the November election draws closer.

 Fedor can be reached at lfedor@minnpost.com.

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Comments (14)

Oddly enough, the rising

Oddly enough, the rising drumbeat for war against Iran from the right wing is the biggest factor in making the speculators rich.

I'd be more impressed with Sen. Klobuchar

if this weren't an election year and more impressed by this article if it contained or referred the reader to any information on the estimated impact of speculators on pump prices and/or any economic purpose they might serve and/or the extent to which speculators disturb the operation of airlines' and other users' elaborate fuel management applications.

(quote)Talk to oil analysts

(quote)

Talk to oil analysts these days and chances are they’ll tell you that more than half the spike in the oil price is due to speculators—specifically noncommercial users. That’s jargon for investors who are buying up futures contracts not because they intend to use the oil, but because they think it’s a good investment. These aren’t airlines or refining companies; these are money managers betting that the price will go up. And so far they’ve been right, thanks to themselves.

Since October, money managers have bought the equivalent of 372 million barrels of oil through a variety of futures contracts, essentially doubling their oil exposure. That includes contracts for West Texas Intermediate crude traded on the New York Mercantile Exchange (CME) and the Atlanta-based IntercontinentalExchange, known as ICE. It also includes contracts for Brent crude, gas and heating oil, and what’s known as RBOB gasoline: stocks of refined gasoline that are ready to be blended into the various grades of gasoline used in the U.S.

According to Tim Evans, an oil analyst with Citigroup (C), money managers now hold a record net long exposure to oil through 638,774 futures contracts, which at 1,000 barrels per contract equates to about 638.8 million barrels of oil. “That’s about 290 days’ worth of Iranian oil exports,” says Evans. “Which implies that we’ve already priced in a nine-month outage from Iran.”

And that’s without a single shot fired. In a way, oil speculators are betting on the likelihood of war with Iran. Because without a material disruption in supply, at some point the price will have to return to something more reflective of demand fundamentals, which aren’t terribly strong at the moment.

http://www.businessweek.com/articles/2012-03-07/have-oil-speculators-alr...

(end quote)

Take Another Look At Those Poll Numbers

Does anyone really think Sen. Klobes is concerned about her re-election? I think her potential opponents are the dog catcher from Bemidji and a gas staion clerk from Windom. The Republican Party, riding it's momentum in the 2010 elections apparently, can't even recruit any second tier candidates.

Sanders is wrong

"A decade ago, speculators controlled only about 30 percent of the oil futures market. Today, Wall Street speculators control nearly 80 percent of this market."

That's total nonsense. Best estimates are that it's up to 38-40% of the market, which is still too high but it's not 80% as Sanders claims.

We need to totally re-think our domestic energy policy. The gas and oil in the ground belongs to the people of this country. There's precedence for this with the Alaskan model, where the people of the state own that oil and are actually paid royalties by the oil companies who extract it and sell it where they wish. But the lease could also be written that sets aside a percentage of what they find for domestic use only.

The federal government signs leases to oil companies to allow them to drill that oil but they shouldn't be given total ownership of that oil to do with as they please.

This is not "nationalizing the oil companies" like the leftists like Sanders are calling for, it's nationalizing our natural resources.

The U.S. is now a net exporter of oil. Who says we have to participate in the world market? Why can't we just write our drilling leases to keep more of our domestic oil within our borders and ignore the cartel and the speculators?

There's 25 times the amount of oil in North Dakota than the experts thought just a few years ago. If even 25% of that oil was set aside for domestic use only, the price of gas would be less than $2 a gallon.

....The U.S. is now a net

....The U.S. is now a net exporter of oil....

Wrong, Mr. Tester, the US is a net importer of OIL---49% of what we use is imported. We would have to double oil production in the US to fully supply our needs.

Further, there is no more "easy oil" left in the US, meaning that any oil to be brought into production is expensive to get and process. The main reason why expensive oil fields like in ND are operating is mainly because the price of oil is so high. Drop the price of oil to 40 dollars a barrel and the ND fields shut down because they cannot be operated at that price. So high oil prices largely are here to stay (minus the effects of speculators, which is not the major part of oil costs).

However, as of 2011, we are a net exporter of GASOLINE, as of last year--our refineries produce more gasoline than what can be absorbed by the US market. So it's not a shortage of gasoline, it's a shortage of cheap, easy oil.

Something we can agree on

Every once in a while I see a comment like this from a more conservative reader and it gives me renewed belief that there is common ground to be found. Here I'm talking about what to do with the oil in this country.

But to the main subject of the article:

We can quibble about the % of oil futures controlled by speculation, lowest number I've seen is 50% in 2009 ( http://www.bakerinstitute.org/publications/EF-pub-MedlockJaffeOilFutures... ), and whether this is election year theatrics, but it seems important to recognize that the financial markets with lax regulation are more a menace to the great majority of our citizens.

Perhaps some speculation is necessary to make the U.S. economic machine run but like with everything, moderation is the key.

We need to totally re-think our domestic energy policy

That's exactly what we are doing, Dennis. Unfortunately, some folks are clinging to an increasingly expensive fossil fuel that fouls our air.

The U.S. is NOT a net exporter of oil, as you claim. We are exporting refined petroleum fuels like diesel and gasoline. We still need to import most of the oil we use.

Unless we were to nationalize oil production in the U.S., there is no way to "keep the oil here." Even if we did, the oil reserves you cite are in difficult places to drill and transport. They are also in environmentally sensitive areas.

We have some alternatives we need to keep working on. We need to use less. Eventually, we need to prepare for a world with less oil.

I'm certain we can do this.

"nearly" "best estimates"

Does anyone ever cite sources any more? WHOSE "best estimates"?

Good move

It's a more aggressive move than you usually see by the cautious-to-a-fault Klobuchar. And teaming up with Bernie Sanders nonetheless! I'm impressed.

Isn't there a glut of crude

Isn't there a glut of crude in the US? Isn't the US for the first time in 60 years exporting gasoline? Isn't that because fracking has dropped the cost of the natural gas used to manufacture petrol in US refineries and the global market has bit up the price for gas produced in the US? In the mean time a bunch of domestic refineries are shut down because they are simply too old to compete on price refining the high sulfur oil on offer. US demand is down, but the world is buying up what we make. We are just having to compete in a global market for gas now.

Buyer required to take delivery of product.

Speculative purchasing problem solved.

competition

I tend to lean towards the relationship between big oil and government regulations that kill all competition. were is the little guy who says Hey I'm okay with just a few billion in profits

Purporting to report on the

Purporting to report on the rise in gas prices without mentioning Israel's saber rattling toward Iran is laughable. Yeah sure, let's just ignore the giant smelly elephant in the room.