Feinstein in the News

WASHINGTON — Seventeen U.S. senators on Wednesday called for a regulatory crackdown on speculative Wall Street trading in oil contracts, insisting that excessive betting in oil markets is driving energy prices far beyond supply and demand fundamentals.

The senators pressed the Commodity Futures Trading Commission to adopt limits on speculation in markets where contracts for future delivery of oil are traded.

"With the average retail price of regular grade gasoline now $3.95 nationwide, and well over $4 in many parts of the country, we have entered a time of economic emergency for many American families," the 17 senators wrote to CFTC Chairman Gary Gensler. "While there has been little change in the world's oil supply and demand balance since 2008, oil prices have jumped around from $147 per barrel, to $31, to $86, to around $104 today."

By the time the letter was made public, the price for contracts of oil and gasoline had tumbled sharply in trading Wednesday on the New York Mercantile Exchange. The price of gasoline contracts dropped by more than 7 percent, and the price for a barrel of crude oil fell $5.67, settling at $98.21, below the $100 psychological threshold.

Stocks fell sharply too, all sparked by new data from the Energy Information Administration showing a 2.4 percent drop in demand last week for oil and gasoline. The data from EIA, the statistical arm of the Energy Department, suggests that prices have risen so high that Americans are driving less at a time of year when they typically start driving more.

From Jan. 1 through the end of April, oil prices surged more than 25 percent, even as global demand for oil was weak. U.S. oil consumption is well below 2007 levels, and U.S. oil supplies are at a six-month high.

So why are prices rising?

At least one CFTC commissioner, Democrat Bart Chilton, thinks excessive speculation is partly to blame.

"There's nothing that has changed in the world, other than what the traders are doing. Maybe that's OK if you are in a few-dollar range in oil, but to take a $15 swing in a week and a $5 swing in a day ... and there is nothing else going on in the world?" Chilton said in an interview with McClatchy before the senators issued their letter.

Chilton voted in favor of a proposed CFTC rule earlier this year that would limit oil traders to no more than 10 percent of positions in the futures market. That proposal is weaker than many Democratic lawmakers want, yet Wall Street is lobbying heavily against it.

"Congress gave the CFTC the power to rein in excessive oil speculation and the CFTC should use it," Sen. Maria Cantwell, D-Wash., said in a statement Wednesday unveiling the letter. "American consumers are getting gouged at the pump while speculation on Wall Street runs rampant. Today, the CFTC must implement these long-overdue position limits to crack down on excessive speculation and provide relief to American consumers. ...

"The sheer volume of new capital coming from hedge funds, financial trades and other long-term passive investors — interests that mostly buy oil futures to turn a quick profit rather than meet a bona fide need to hedge risk — is creating artificial demand and driving up the price for consumers in ways unrelated to actual supply-and-demand fundamentals," the senators' letter said. CFTC enforcement of position limits could restrain price volatility, they said.


If anyone doubts the power of speculative positions, last week should have put those doubts to rest. In a single day, May 5, crude oil traded on the NYMEX fell 8.6 percent, the largest such drop ever. The drop tracked with media reports that big Wall Street investment groups were unwinding their bets on rising oil prices.

Besides Cantwell, Democratic senators signing the letter were: Ron Wyden of Oregon, Dianne Feinstein of California, Bill Nelson of Florida, Mark Pryor of Arkansas, Jay Rockefeller of West Virginia, Amy Klobuchar of Minnesota, Mark Begich of Alaska, Jeanne Shaheen of New Hampshire, Robert Menendez of New Jersey, Mark Udall of Colorado, Patty Murray of Washington, Ben Cardin of Maryland, Richard Blumenthal of Connecticut and Jeff Merkley of Oregon. Also signing were Maine Republican Susan Collins and Vermont independent Bernie Sanders.

President Barack Obama last month announced creation of an inter-agency task force charged with probing for price gouging of consumers and manipulation of financial markets and led by Attorney General Eric Holder.