WASHINGTON, DC -- With gas prices continuing to rise, U.S. Senators Jack Reed (D-RI) and Carl Levin (D-MI) today welcomed the Obama Administration response to their request to create a new federal task force to investigate whether speculators are driving up prices in energy commodity markets through manipulative or deceptive practices.  The senators said they hope the Administration continues to seek out other avenues to fight speculation and abuse.

In March, when gas prices were around $3.50 per gallon, Reed and Levin wrote President Obama: "Given the recent increase in speculative activity in the oil futures markets and rising prices despite adequate supplies, and to prevent $4 per gallon or higher gas from slowing the economic recovery now underway, we urge you to take immediate action to investigate excessive speculation and price manipulation in the oil markets."

Experts suggest that excessive oil speculation may drive up the cost to consumers by $1 a gallon and make prices unstable, and a 2010 Reuters study reported that speculation inflated oil prices from $10 to $30 per barrel, costing U.S. consumers $300 billion a year.

"Excessive speculation on Wall Street can drive up gas prices on Main Street.  This task force needs to take a good, hard look at price manipulation and distortions that can cause inflated prices for U.S. consumers," said Reed. "The laws of supply and demand result in a market price, but those principles can be undercut by unregulated speculation.  Aggressively policing that fraud and abuse by providing greater transparency will help drive down energy costs and provide relief to Rhode Islanders and Americans across the country."

"High and rising prices at the pump are putting more pressure on families and threatening the economic recovery," Levin said. "Immediate action is needed to determine the extent to which excessive speculation in oil prices is adding to costs. With gas prices averaging $4 in Michigan, I welcome the administration's adoption of our proposal, and look forward to the results of the investigation and proposals to use the new tools in the Dodd-Frank Act to put trading limits on energy commodities to stop the excesses of Wall Street."

Today, the price of crude oil has risen to $110 per barrel, and the average U.S. retail price for regular unleaded gas this week is $3.84 per gallon.  The record peak for gas prices was in July 2008 when the nation's average went up to $4.11.

On March 22, 2011, Reed and Levin wrote to President Obama asking him to create a new federal interagency task force comprised of officials from the U.S. Department of the Treasury, the U.S. Department of Energy, the Securities and Exchange Commission (SEC), the Commodities Future Trading Commission (CFTC), the U.S. Department of Justice, and other federal agencies to take a closer look at how the energy commodity markets are being manipulated and ferret out any unscrupulous conduct in excessive speculation.

Today, Attorney General Eric Holder announced the creation of the Oil and Gas Fraud Working Group, which will monitor the oil and gas markets for potential wrongdoing, and will include staff representatives from all of the organizations that Reed and Levin called for.

In their letter, the senators concluded: "As the summer driving season approaches, we respectfully request that the task force be convened immediately and report its findings within 60 days.  It is important to assure the American public that energy costs are not the result of excessive speculation or market manipulation, and if they are to take the necessary steps to protect consumers.  We look forward to working with you on this critical issue."

Full text of the letter follows: 

March 22, 2011

President Barack Obama
The White House
Washington, DC 20500

Dear Mr. President:

            The price of gas at the pump weighs heavily on the budgets of American families.  Gas currently averages $3.56 per gallon in Rhode Island, up 37 cents over the past month, and a record high for March.  The average gasoline price in Michigan is $3.54 per gallon (up over 25% since a year ago).  Given the recent increase in speculative activity in the oil futures markets and rising prices despite adequate supplies, and to prevent $4 per gallon or higher gas from slowing the economic recovery now underway, we urge you to take immediate action to investigate excessive speculation and price manipulation in the oil markets.

            The recent rapid price increases of crude oil and other commodities are a significant concern for middle class families and businesses.  According to the Energy Information Administration, the average U.S. household will spend at least $700 more for gasoline in 2011 than it spent last year.  These rising energy costs also add concern over the continued growth of the economy, with some economists estimating that a 10% increase in price trims GDP by 0.2% after one year, and 0.4% after two.  While the unrest in the Middle East has contributed to the recent rise in prices, it is important to understand how much of this rise can be attributed to the dynamics of a "fear premium" and how much may be due to excessive speculation, market manipulation, or other factors that have consistently hurt middle class families.

            Currently, there is no shortage of domestic oil supplies.  The Strategic Petroleum Reserve is filled to an all-time high, and domestic oil supplies show no signs of immediate constriction, which makes the recent gas price spikes of 30 cents or more per gallon raise serious concerns about possible excessive speculation or manipulation of the markets.  Recent data indicate a growing position of speculative traders' interest in crude oil.  The last few weeks have seen contracts without a commercial interest in oil increase by 25%.  In addition, Commodity Futures Trading Commissioner Bart Chilton noted on March 15th that there was an increase of 64% in energy futures equivalent contracts held by speculative investors from the middle of 2008 to January 2011.  Accordingly, there is growing concern that prices in the commodity markets - most notably oil but also food - are being increasingly affected by speculative, manipulative, or deceptive practices.  Many experts believe that the rise and fall of oil prices in 2008 was due to excessive speculation, and we should be sure to learn the lessons of the past so they are not repeated.

            One useful step that should be undertaken immediately is convening an interagency task force to quickly examine and evaluate trading in the oil markets.  The task force should be comprised of members of the highest levels of our government, including the Secretary of the Treasury, the Secretary of Energy, the Chairman of the Securities and Exchange Commission, the Chairman of the Commodities Futures Trading Commission, the Chairman of the Federal Trade Commission, the Chairman of the Board of Governors of the Federal Reserve, and the Attorney General.  This task force should promptly examine the rapid rise of gas prices in 2011, determine what aspects of this spike are due to excessive speculation or market manipulation, and suggest the implementation of appropriate policies, including new options afforded by the Dodd-Frank Act.  The regulators have many tools at their disposal to restrain excessive speculation, including imposing energy commodity position limits and reasonable margin requirements.  A coordinated and timely effort to investigate and report on the status of the oil markets, as well as recommending the use of appropriate tools to combat excessive speculation and manipulation, would send a strong message to both consumers and speculators.

            As the summer driving season approaches, we respectfully request that the task force be convened immediately and report its findings within 60 days.  It is important to assure the American public that energy costs are not the result of excessive speculation or market manipulation, and if they are to take the necessary steps to protect consumers.  We look forward to working with you on this critical issue. 

Sincerely,


                      

            Jack Reed                                                                    Carl Levin
            United States Senator                                                 United States Senator