The Obama campaign on Sunday talking about policy on cracking down on wild oil markets that drive up gas prices, on a conference call with New Jersey Gov. Jon Corzine, Elgie Holstein, Bill Clinton administration Energy Department chief of staff and Obama campaign new economic advisor Jason Furman.
*Get loopholes closed so the energy traders who are speculating and driving up prices come under regulations of the Commodity Futures Trading Commission.
*Ban on trading U.S. oil through foreign markets
*Work with other nations to coordinate oil futures markets.
*Calling again for probes: renewing call for the Federal Trade Commission do do something and called for the Bush Justice Department to investigate gas price jumps.
Obama Announces Plan to Fully Close the Enron Loophole, Crack Down on Excessive Energy Speculation
As President, Obama will restore common-sense regulation to ease the impact of soaring gas prices
CHICAGO, IL—Senator Barack Obama today announced his plan to crack down on excessive energy speculation and fully close the “Enron Loophole” to ease the impact skyrocketing gas prices. The Enron Loophole was created by McCain campaign co-chair Phil Gramm at the behest of Enron—just one example of the special interest politics that put the interests of Big Oil and speculators ahead of the interests of working people. And the American people have seen the results: record corporate profits while Americans pay record prices at the pump.
“For the past years, our energy policy in this country has been simply to let the special interests have their way—opening up loopholes for the oil companies and speculators so that they could reap record profits while the rest of us pay $4.00 a gallon,” Senator Obama said. “My plan fully closes the Enron Loophole and restores common-sense regulation as part of my broader plan to ease the burden for struggling families today while investing in a better future.”
Barack Obama: Cracking Down on Excessive Energy Speculation to Ease the Impact of Record Oil Price Increases
Our economy is reeling from a historic run-up in oil prices. The price of crude oil has climbed from under $50 a barrel to an all-time high of nearly $140 in less than 18 months. American consumers are feeling the impact of these record prices at the gas pump, the grocery store, and in everyday purchases as well. At a time when families are already struggling with soaring healthcare costs, stagnant wages and record declines in housing values, these record energy prices are turning the middle-class squeeze into a devastating vice-grip for millions of families.
Barack Obama understands that while many factors are contributing to record oil prices, we must do everything we can to help ease the burden on struggling families in the near term while putting in place policies like conservation, development of alternative fuels and investments in new technologies to reduce our dependence on foreign oil and reduce oil consumption by 35 percent, or 10 million barrels, by 2030. He is particularly concerned that unregulated energy speculators may be distorting the market by making excessive bets on the future price of oil. Independent experts across the political spectrum have argued that excessive speculation in oil futures is contributing to high energy and food prices. Barack Obama understands importance of a vibrant oil futures market to help producers and buyers hedge against swings in the price of oil. But he believes that when an absence of common sense rules allows a few energy lobbyists and speculators to undermine the public confidence in the integrity of the market , we need common sense changes to restore market fundamentals so they work for working families. Today, he called for stepped-up oversight of energy markets to help stabilize oil prices and ease the burden of high energy prices for American families.
The Obama Plan to Crack Down on Excessive Energy Speculation
Ø Fully Close the “Enron Loophole”: One of the reasons our energy market is particularly vulnerable to excessive speculation is the so-called “Enron Loophole.” This provision was slipped into law by Senator Phil Gramm in late 2000 at the behest of Enron lobbyists to exempt some energy traders from the regulations and public protections applicable to exchange-traded commodities. As a result, the Commodity Futures Trading Commission (CFTC) is unable to fully oversee the oil futures market and investigate cases where excessive speculation may be driving up oil prices. This regulatory gap is dangerous because: 1) the absence of government oversight has the potential to facilitate abusive trading or price manipulation. And 2) the failure of a large derivatives dealer could trigger disruptions of supplies and prices in energy markets. As President, Barack Obama will go beyond the changes included in the recently-passed Farm Bill and fully close the Enron loophole by requiring that U.S. energy futures trade on regulated exchanges. He will call for new, disaggregated data on index fund and other passive investments to increase transparency and oversight of the growing number of institutional investors participating in commodities futures markets. And he will support legislation directing the CFTC to investigate whether additional regulation is necessary to eliminate excessive speculation in U.S. commodities markets, including higher margin requirements and position limits for institutional investors.
Ø Ensure That U.S. Energy Futures Cannot be Traded on Unregulated Offshore Exchanges: CFTC oversight of oil market speculation is also limited by rules that allow energy traders to engage in unregulated transactions through foreign subsidiaries of U.S. exchanges. Currently, about 30 percent of U.S. oil futures trades fly below the regulatory radar because they are transacted on a U.S. exchange that works through a subsidiary in London. Similar arrangements are being pursued by U.S. exchanges in partnership with Dubai as well. Barack Obama would limit the price impacts of excessive speculation by preventing traders of U.S. crude oil from routing their transactions through off-shore markets in order to evade speculation limits and also impose reporting requirements.
Ø Work with Other Countries to Coordinate Regulation of Oil Futures Markets: As the global energy market expands and trading for oil futures increases, Barack Obama believes we must work with our other countries to establish uniform approaches to avoiding excessive speculation in commodities futures markets. As President, he would work through the International Organization of Securities Commissioners (IOSCO) and other international organization to harmonize regulations across countries. This effort will help to ensure that as the U.S. strengthens oversight and transparency in U.S. exchanges, these efforts are not undermined by overseas trading subject to lax regulations.
Ø Call on the Federal Trade Commission and Department of Justice to Vigorously Investigate Market Manipulation in Oil Futures. In 2007, Senator Obama supported legislation that gave the Federal Trade Commission (FTC) new authority to investigate and pursue price manipulation in oil markets. However, even in the face of record oil prices and growing concerns about excessive speculation, the Bush Administration has failed to utilize these new powers. Barack Obama does not believe we cannot afford to wait weeks and months more to vigorously investigate whether energy traders and oil companies manipulating the market at the expense of consumers. He is calling on the FTC to immediately expedite its investigation into market manipulation, including in the oil futures markets. He is also calling on the Department of Justice to open an investigation into whether energy traders have been engaged in illegal activities that have helped drive up the price of oil and food.
Independent experts agree that excessive speculation is elevating oil prices:
Ø Akira Yanagisawa, Senior Economist at Japan’s Energy Data and Modeling Center: “In the most recent terms (the third and fourth quarter in 2007), the fundamental prices [of oil] are estimated around 50 to 60 dollars. On the other hand, it is estimated the premium has risen up to around 40 dollars at maximum.” [Institute of Energy Economics, 3/08, http://eneken.ieej.or.jp/en/data/pdf/421.pdf, p. 13]
Ø Michelle Foss, Center of Energy Economics at University of Texas: “[G]iven that inventories of crude and products are healthy in many locations and that the very real risk of supply disruptions has so far been avoided, the remaining factor left to balance the price per barrel is speculation. The role of speculation in oil markets has been widely debated but could add upwards of $20 to the price per barrel.” [Oxford Institute for Energy Studies Working Paper, 2/07, http://www.oxfordenergy.org/pdfs/NG18.pdf, p. 34].
Ø Larry Chorn, Chief Economist of Platts: “says the actual costs incurred in producing the most expensive oil is only around $70 or $80 a barrel, meaning that about $50 of the current price represents ‘the market's risk premium plus speculation.’” [BusinessWeek, 5/13/08, http://www.businessweek.com/bwdaily/dnflash/content/may2008/ db20080513_734146_page_2.htm].
Ø Senate Permanent Subcommittee on Investigations: “Several analysts have estimated that speculative purchases of oil futures have added as much as $20-$25 per barrel to the current price of crude oil, thereby pushing up the price of oil from $50 to approximately $70 per barrel.” [Staff Report, 6/06, http://levin.senate.gov/newsroom/supporting/ 2006/ PSI.gasandoilspec.062606.pdf].
Ø Clarence Cazalot Jr., CEO, Marathon Oil: “$100 oil isn't justified by the physical demand in the market - it has to be speculation on the futures market that is fueling this.” [CNNMoney, 11/12/07, http://money.cnn.com/2007/11/12/markets/oil_hundred/index.htm? postversion=2007111216].
Ø J. Stephen Simon, Executive Vice President, Exxon-Mobil: the price of oil should be $50 to $55 per barrel based on supply and demand fundamentals. [House Testimony, 4/1/08, http://globalwarming.house.gov/tools/assets/files/0453.pdf].
Ø John Hofmeister, President, Shell Oil Co: The proper range of crude oil is “somewhere between $35 and $65 a barrel.” [Financial Post, 5/22/08, http://www.financialpost.com/reports/oil-watch/story.html?id=532747].
Ø Gerry Ramm, Senior Executive, Inland Oil Company: “Excessive speculation on energy trading facilities is the fuel that is driving this runaway train in crude oil prices.” [Senate Testimony, http://commerce.senate.gov/ public/_files/RammSenateCommerce060308Testimony.pdf].
Senator Obama’s speculation plan is part of his broader strategy to provide immediate relief from high gas prices while investing in a better energy future:
Ø Enact a Windfall Profits Tax on the Top Grossing Oil Companies and Ease the Burden on American Families: Barack Obama recognizes that it is critical that oil companies and shareholders have strong incentives to run well managed businesses that invest in efficiency and innovation. However, a significant share of the remarkable profits currently enjoyed by big oil companies has not resulted from their foresight, efficiency or innovation. Barack Obama supports imposing a windfall profits penalty on oil selling at or over $80 per barrel. Revenue from the proposal will be invested in a number of mechanisms to reduce the burden of rising prices, such as expanding resources for the federal Weatherization Assistance Program, increasing federal support for state and local-level efforts to relieve the burden of rising energy prices on low and moderate-income families, and helping permanently expand the Low Income Home Energy Assistance Program, which helps families pay their heating and cooling bills. Obama will couple these investments with his plan to invest in job training initiatives that will help more Americans enter the growing energy efficiency jobs sector, a good-paying field that cannot be outsourced.
Ø Provide a Tax Cut for Working Families: Barack Obama will provide broad-based tax relief to American workers so they are better able to pay rising energy, housing and health care costs and save money for a secure retirement. The Obama tax fairness agenda provides 150 million workers a “Making Work Pay” tax credit of $500 per person or $1,000 per working family. The tax credit will completely eliminate income taxes for 10 million Americans.
Ø End Oil and Gas Industry Tax Breaks: Obama has called for repealing the oil and gas industry tax breaks that President Bush himself has said himself are unnecessary given today’s strong market incentive for expanding exploration and production.
Ø Cooperate with Oil Importing Nations to Reduce Demand: As new large oil importing nations come on the market, the United States is at the mercy of an ever more volatile oil market. Obama believes we should use existing organizations, like NATO, to make energy security a shared global goal. We should take steps to engage the largest new consumers, China and India, including by inviting them to join the International Energy Agency. Though they are not OECD countries, a formalized relationship for them with the International Energy Agency – where we work together on common analysis and emergency response mechanisms – is imperative.
Ø Invest in a Better Energy Future: Obama has a comprehensive plan to make America a global energy leader, including accomplishing the ambitious goal of reducing our dependence on foreign oil and reduce oil consumption overall by at least 35 percent, or 10 million barrels of oil, by 2030. This plan includes increased fuel economy standards, investments in developing advanced vehicles, building a biofuel distribution infrastructure, and building more livable and sustainable communities.
FOR IMMEDIATE RELEASE
June 22, 2008
Paid for by Obama for America