President Obama pushed Congress to give oil market regulators more muscle to deter price manipulation by speculators. Watch his entire statement.
President Obama's call to rein in oil market speculation comes just as those very market forces appear to be accomplishing his real goal of lowering gasoline prices in the middle of an election campaign.
The president announced Tuesday that he wants Congress to crack down on oil market speculators whom he argues have helped drive up the price of crude oil and gasoline.
Obama wants to boost funding to step up regulators’ surveillance of energy futures traders and increase civil and criminal penalties tenfold for those found guilty of manipulating prices. He's also urging that market regulators deploy new technology.
"I call on Congress to pass a package of measures to crack down on illegal activity and hold accountable those who manipulate the market for private gain at the expense of millions of working families," Obama said at a White House press conference.
Obama said the rapid expansion of oil trading has outpaced the resources devoted to regulating oil markets, likening the problem to the National Football League quadrupling the number of teams without hiring more referees.
"You'd end up having havoc on the field, and it would diminish the game," the president told reporters. "It wouldn't be fair. That's part of what's going on in a lot of these markets."
House Speaker John Boehner, R-Ohio, denounced the plan as unnecessary, saying the White House already has the tools available to crack down on any possible oil price manipulation.
"Where is his Federal Trade Commission? Where is the SEC?" said Boehner. "He's got agencies there. So instead of just another political gimmick why doesn't he doesn't he put his administration to work to get to the bottom of it."
Announcing a high-profile crackdown on oil market manipulators might play well with voters and motorists. But it’s far from clear what impact, if any, it will have on the price they pay at the pump.
After a sharp run-up this year to an average of $4 a gallon, rising gasoline prices have become a key issue on the political debate on the presidential campaign trail.
Pump prices have shot up 70 cents a gallon on average since bottoming in December. A 1.7 percent increase in March alone was the biggest driver of a 2.7 percent bump in the consumer price index, compared to last March.
Though the price run-up has brought renewed attention, energy policy is a perennial source of political division in Washington, and the presidential campaign has brought into sharp relief the differences between the president and the presumptive Republican nominee, former Massachusetts governor Mitt Romney. The Obama campaign as sought to portray Romney as a friend of Big Oil, who supports continuing industry tax breaks and opposed higher auto mileage standards.
The Romney campaign, in turn, has blamed the White House for rising gasoline prices, arguing that drilling restrictions and delays in approving construction of new Canadian pipeline have restricted U.S. oil supplies and driven up pump prices. Romney has also criticized the Obama administration’s support for increased development in renewable energy, including government grants to early stage companies.
"You can't drive a car with a windmill on it," Romney recently told a campaign crowd in Ohio.
Obama can also point to an historic reversal in oil production, which began rising again on his watch after years of decline. That increased output, though, was the result of policies in place long before he was elected and improvements in exploration and drilling technology.
Despite rising North American oil output, though, oil and gasoline prices have been rising this spring for a variety of factors. On top of the list is the Obama administration’s move to sanction OPEC oil producer Iran in an effort to stop its development of nuclear weapons. Fears of a possible crimp in global supplies if the flow of Iranian oil was interrupted prompted wave of - perfectly legal – speculation by investors, who bid up oil futures prices.
The measures proposed by the president Tuesday would target a much narrower – and completely illegal – form of trading by investors who use a variety of schemes to manipulate prices. Uncovering those schemes isn’t always easy, which is why Obama wants Congress to allocate money to put more trading cops on the beat. (The White House offered no evidence that market manipulation is taking place.)
Oil industry analysts are divided on what long-term impact, if any, legitimate speculators have on the price of oil. Though they may increase the volatility of prices swings, the impact of heavy selling can be just as powerful as the run-up when most investors are buying.
There are also signs those sellers may be unwinding the upward price pressure from investors. That’s largely because market demand – from people who actually use oil and not just buy and sell it for profit - appears to be easing.
Thanks to easing demand from a slowing global economy and increased production from Saudi Arabia, the oil market is coming off a two-year cycle of tightening supply, according to the International Energy Agency.
Saudi Arabian oil officials said recently they’re ready to ensure that the oil market is well supplied – even if the Iranian sanctions crimp supplies. Last week Saudi minister Ali al-Naimi said the kingdom is working with other OPEC members to boost output and keep prices from rising.
"We are seeing a prolonged period of high oil prices," Naimi said in a statement during a visit to Seoul. "We are not happy about it.”
Demand for oil and gasoline has been weakened by a sluggish global economy. In the U.S., higher gasoline prices have been offset by warmer-than-normal weather, which has helped household save on the heating bills. Falling natural gas prices have also helped cut the price of electricity, further easing the strain on household budgets.
U.S. gasoline demand is also easing as the domestic auto industry enjoys a rebound driven by brisk sales of new models offering higher fuel efficiency
Some analysts believe that pump prices may have peaked for the season, much as they did last May before falling through the summer months.
In its latest forecast, issued this week, the Energy Information Administration said it expects the retail prices of a gallon of regular gasoline to peak in May at $4.01 and then ease to an average of $3.95 a gallon through the summer.
Gasoline prices could fall even further if crude prices continue to ease. Analysts say the outlook for crude prices depends heavily on how much further the global economy slows this year.