Legislation would rein in top cause of spike in gas prices

In response to recent reports that excessive oil speculation adds 56 cents per gallon to what consumers in Minnesota and across the country pay at the gas pump, U.S. Sens. Al Franken and Amy Klobuchar have introduced legislation to bring down gas prices by cracking down on oil speculators.

Franken said Minnesotans now pay an average of $3.68 a gallon for gasoline, up a full 10 cents more per gallon in two weeks. He pointed to the recent report in Forbes magazine that found that oil market speculators drive the market price of oil up and add 56 cents to a gallon of gas.

The legislation would direct Commodity Futures Trading Commission Chairman Gary Gensler — whom Sen. Franken met with last Thursday to urge him to take immediate action — to utilize all his authority, including emergency powers, to eliminate excessive oil speculation. The emergency directive is identical to bipartisan legislation that passed the House of Representatives by a vote of 402-19 during a similar crisis on June 26, 2008.

“Demand for oil is lower than it has been in five years, yet instead of a drop in gas prices, families in Minnesota are breaking the bank just to fill up their tanks,” said Franken “Excessive oil speculation by Wall Street is adding about 56 cents to every gallon of gas and it needs to stop now. This bill directs the administration to put an immediate end to this practice.”

“Out-of-control speculation on Wall Street is driving up gas prices, hurting consumers and increasing costs for farmers and businesses,” Klobuchar said. “The CFTC has the power to stop this excessive speculation, but has been dragging its feet. This legislation would direct the CFTC to take immediate action to reduce unnecessary speculation and give families some relief at the pump.”

On March 5th, when Franken first wrote to Gensler urging the CFTC to crack down on oil speculation, the average price of gas in Minnesota was $3.58. Just 14 days later, the average price of gas in the state has soared to $3.68 a gallon.

The legislation would require the CFTC to invoke its emergency powers within 14 days to:

• Curb immediately the role of excessive speculation in any contract market within the jurisdiction and control of the Commodity Futures Trading Commission, on or through which energy futures or swaps are traded; and

• Eliminate excessive speculation, price distortion, sudden or unreasonable fluctuations or unwarranted changes in prices, or other unlawful activity that is causing major market disturbances that prevent the market from accurately reflecting the forces of supply and demand for energy commodities.

Klobuchar noted that the Dodd-Frank Wall Street reform bill required that the CFTC impose position limits to eliminate, prevent, or diminish excessive oil speculation by Jan. 17, 2011. The CFTC failed to meet this deadline and has yet to implement position limits.

Klobuchar has also cosponsored legislation, the Anti-Excessive Speculation Act, that would drain excessive speculation from the energy markets through three major steps.

First, it would, for the first time, define what constitutes excessive speculation. The lack of a clear definition of excessive speculation is a major reason why past regulatory and legislative efforts have failed. Second, the bill would establish clear, precise statutory position limits on individual speculators. No single trader could hold more than 5 percent of the oil market for speculative purposes. Third, it would cap energy speculation as a percentage of the overall market. The cap would be set at its 25-year historic average.

Klobuchar serves on the Senate Agriculture Committee, which oversees the Commodity Futures Trading Commission.