CFTC Chairman Gary Gensler
Last month U.S. Senator Dick Durbin of Illinois announced that many of his colleagues have come to the realization that oil futures speculation is intrinsically linked to rising gasoline prices. When he chaired a Senate Appropriations Subcommittee hearing(3/21)he cited a February report produced by Goldman, Sachs that said speculation alone accounts for 56 cents per gallon and may at times go higher. A Wall Street Journal analysis says 63 cents of every gallon is due to speculation.
Durbin questioned Gary Gensler, Chairman of the U.S. Commodity Futures Trading Commission (CFTC), about the effects market speculators have on the price of gasoline. In his responses Gensler acknowledged that speculation does indeed impact retail gasoline prices but beyond "watching oil markets regularly" he expressed little interest in taking any corrective actions or upsetting any apple carts.
Now another U.S. Senator is adamant that CFTC needs to follow through on Congressional mandates to reduce oil speculation and has written to President Obama encouraging him to fire Gensler if he fails to deliver corrective action.
U.S. Senator Bill Nelson(D-FL) said Gensler should be held accountable over the commission's delays in imposing new congressionally mandated restrictions on speculative trading of futures contracts, including for oil and gas.
In his letter to President Obama (April 3, 2012), Nelson wrote the following:
Dear Mr. President:
Congress gave the CFTC the authority to impose new restrictions on unregulated speculative trading of futures contracts, including for oil and gas. I was, and continue to be, a strong supporter of this.
Among other things, I have proposed legislation that would prevent any single investor from holding more than 5 percent of the oil futures market. I believe there's ample evidence that excessive oil trading by banks and hedge funds is hurting consumers at the gas pump and it's hurting our nation's recovery."
The share of the oil futures market now controlled by speculators has more than doubled over the past 10 years - while gas has gone from $1.15 a gallon to $3.97 a gallon.
In order to diminish excessive speculation the CFTC was supposed to implement new rules by January 2011. But intense pressure from industry lobbyists is delaying reform.
A recent report by the Project on Government Oversight suggests the CFTC continues to have a revolving-door relationship with the industries it regulates. A New York Times editorial (3/25) suggests it is up to your administration to provide all-out support for implementing and enforcing the new trading rules.
Mr. President, if CFTC Chairman Gary Gensler doesn't act soon to implement rules that will cut down on speculation in the oil futures markets, then you should consider not reappointing him.
For the record, Gensler, a former Goldman, Sachs executive, serves as chairman of the five-member CFTC until at least the end of this month when his term expires. A law allows him to remain on the job through next January.