copp act hr6264: consumer oil price protection

[lazygood4nothinbum]

according to larson's website, the bill requires "that anyone investing in oil futures or swaps on the unregulated market be able to take (delivery of) inventory of the product in which they are investing (at the time of the purchase)."

library of congress site is not currently pulling up full text of the bill but highlights can be reviewed at The Online Office of Congressman John B. Larson - Home or as noted below from larson's site:

Washington, DC -- Congressman John B. Larson (CT-01), Vice Chair of the Democratic Caucus, and Congressman Frank LoBiondo (NJ-2) along with dozens of other members of Congress stood in the shadow of the Capitol today to express bipartisan support for legislation that will reduce speculation in the energy markets and drive down gas prices. The leadership of the House of Representatives has committed to moving such legislation in the month of July.

"The concept of supply and demand is broken in our oil market," said Congressman Larson. "Oil prices keep skyrocketing to record levels while demand is flat or down. When everyone from the former head of trading at the Commodities Futures Trading Commission to the Secretary General of OPEC and executives from the big oil companies say that speculation is a major contributing factor to rising gas prices, it is obvious that we need to do something bold."

In 2000 there was $9 billion of investment in oil futures. Now, that number is up to $250 billion. This huge increase is fueling the rise in gas prices and making it difficult for average Americans to make ends meet. This type of artificial distortion of the markets threatens the very underpinnings of our market system.

"From our families to our businesses, everyone is feeling the financial strain from increasing fuel costs. When we see oil prices spike not because of the demand by consumers, but because of the mere speculation by energy traders, then every American should be outraged and Congress is required to act," said LoBiondo, an original cosponsor of the legislation.

The Consumer Oil Price Protection Act, H.R. 6264, would reduce speculation in the markets by requiring that anyone who is investing in energy futures on the "dark" markets be able to take receipt of that product. In other words, it would take speculators out of the unregulated markets and shed some light on their activities.

"Many economists have estimated that excessive speculation is adding between $20 and $50 to the price of a barrel of oil. We need to close loopholes and help reestablish oversight of the commodities markets to ensure that gas prices truly reflect the laws of supply and demand," said Congressman Baron Hill (IN-9).
Other estimates suggest that speculation contributes up to 70% of the cost of a barrel of oil. And, reducing speculation would have a huge impact on the price at the pump.

"Middle class families are suffering at the pump and I am pleased to join with my colleagues on both sides of the aisle in support of this important legislation," said Congresswoman Shea-Porter (NH-1). "I am hearing from families who literally cannot afford to drive their kids to the local ice cream shop-this is unacceptable. We must work together to get gas prices down."

Congress is committed to acting on this issue. There are plans to hold hearings in the relevant committees over the next few weeks and consider legislation during the month of July. Speaker Pelosi sent a letter to President George Bush calling on him to direct the CFTC to use its emergency powers to bring order to the energy markets. And, the House will bring up legislation today directing such action.

"Congress must rein in unscrupulous market speculators who artificially drive up the price of oil through fear. If no action is taken, what we are seeing now will pale in comparison to the overwhelming burden homeowners will feel this fall and winter when they purchase home heating fuel. Americans deserve immediate short-term price relief and want long-term solutions to our nation's energy policies. I applaud my Connecticut colleague, Vice-Chairman John Larson, for his leadership on this issue," said Congressman Joe Courtney (CT-02).

"The Consumer Price Protection Act will help curb the uncontrolled speculation in oil markets that is artificially increasing the price of oil. Market manipulation is unconscionable and is one of the problems we can combat swiftly," said Congressman Chris Smith (NJ- 4).

"Excessive speculation is driving up energy costs for American families and crippling our economy," said Congressman Bart Stupak (MI - 1), chairman of the House Energy and Commerce Subcommittee on Oversight and Investigations and a leader on this issue. "I have been looking at energy speculation for three years and just Monday held a seven-and-a-half hour hearing on the topic. Congress has the facts. Now we must take up comprehensive legislation to close off the loopholes that are allowing speculators to manipulate the markets."

Sky-High Gas Prices
Americans are facing record high gas prices. Even as many of us cut down on driving and demand for fuel goes down, prices continue to skyrocket. This trend can't be explained by supply-and-demand economics. So how did we get here? The more I investigate this energy crisis, the more convinced I become that the root of the problem lays in speculation in unregulated commodities futures markets.
Gas prices in America are being distorted and consumers are paying the price, at the pump and elsewhere. The petroleum market is so deeply intertwined with every other segment of our economy that rising oil prices have caused every American's cost of living to shoot up. One important example is how rising gas prices have influenced the price of staple foods like wheat and milk - when oil prices are high, it costs more to produce food and to ship it, and consumers get stuck with the bill once again. I truly believe out-of-control oil prices are a major destabilizing force in our economy, which is why it is time for Congress to step in. We have to protect America's economy.
The Cause
Traditional equity markets have become more and more unstable in recent years, leading many investors to put their money in commodity investments, which have stayed relatively stable. Oil futures have become one of the most lucrative types of commodity investments. To get a sense of how popular oil futures have become, just consider that in 2000, about $9 billion was invested in oil futures. Today that number has risen to about $250 billion.
Many investors buy oil future contracts in what are called over-the-counter or "dark" markets, meaning the markets that are exempt from government regulation. Because oil future contracts have become so popular, investors engage in bidding wars, driving up the selling prices for these contracts. These investors never actually receive the oil or distribute it to consumers - they just own contracts on the oil for the future. That's why we call it speculation. But by the time the oil is purchased by distributors, the artificially inflated costs of the oil are already built into the price tag, and American consumers pay the price for this at the pump.
Fixing a Broken System: How the Consumer Oil Price Protection Act Helps
My Consumer Oil Price Protection Act (HR 6264) would require that anyone investing in oil futures or swaps on the unregulated market be able to take inventory of the product in which they are investing. This takes pure speculation out of the equation, leaving oil to be bought by those who are going to use or distribute it themselves. This should help in restoring a supply-and-demand equilibrium to the petroleum market, bringing real relief to consumers.
Outside Support: Who Else Recognizes the Need for Reform?

• On May 1, 2008, Senator Jeff Bingaman from New Mexico, who is the chairman of the Energy and Natural Resources Committee, gave a speech in which he cited the role of speculators as one of the primary forces driving up energy costs.

• In a statement he gave to Congress, Fadel Gheit, managing director and senior oil analyst with Oppenheimer & Co. Inc (a leading investment firm), said that he believes current oil prices are inflated by as much as 100% and that he feels that "industry fundamentals of supply and demand" do not justify the current prices. He stated that they are "driven by excessive speculation."

• Bart Chilton, the U.S. Commodity Futures Trading Commissioner, sent a letter to the Senate on May 19 of this year, expressing his support for the review they are conducting of speculative trading in commodity markets, specifying that the review "should not be limited to on-exchange activities of index traders and hedge funds."

• Stephen Simon of Exxon Mobil Corp said in a congressional hearing in April that speculation in futures markets is one of the major causes of exorbitant oil and gas prices.

• Back in 2005, Lee Raymond, then the chairman and CEO of Exxon Mobil, said "We are in the mode where the fundamentals of supply and demand really don't drive the price."

(mods: didn't know if this was better placed in soap box or fire & money or stock picking so just put it in other. feel free to relocate if not appropriate here)

[CitricAcid]

Absolutely ridiculous, especially considering the idea that many funds invest in commodities to protect themselves FROM the very Government (the Fed/declining dollar) that is now trying to regulate them. It is as if they act in one manner by lowering rates and as people react to it by moving into commodities or whatnot, they all get angry and furious that people would try to disobey their motives and then try to regulate that. The "oil speculation" is a far less problem than it is made out to be, considering that they must sell as well if they "can't handle delivery."

[brewer12345]

Interesting that they are targetting the dark market rather than the futures market as a whole. Shows that someone in Congress has been paying attention. I'd be a lot happier if they just did away with the dark market, but I suppose this is the next best thing.

[lazygood4nothinbum]

dark markets? as if there wasn't enough about all this that i didn't understand. how do dark markets function? is that just in oil? how do regulated commodities differ? will bringing dark markets under control bring down the cost of chocolate milk?

edit: ask, google and you shall receive

Oil Trading's Powerful "Dark Markets", CBS News Looks Inside Futures Trading Beyond Watch Of U.S. Regulators - CBS News

[brewer12345]

Originally Posted by lazygood4nothinbum

dark markets? as if there wasn't enough about all this that i didn't understand. how do dark markets function? is that just in oil? how do regulated commodities differ? will bringing dark markets under control bring down the cost of chocolate milk?

I am admittedly a bit hazy on the exact mechanics, but I believe there are two markets. One is the exchange-traded futures market, where much of the volume goes and which is reasonably tightly regulated by the CFTC. The exchanges also force traders to put up collateral to back their positions, which is marked to market frequently.

The other is the dark market. This is the back alley where nobody really knows how much volume there is. This is a "market" of over the counter trades between a trader and an intermediary (Goldman Sachs, etc.). Since it is off the exchange, the CFTC doesn't regulate it and there is no exchange to force the traders to hold suffcient collateral, although presumably the intermediary does so in order to protect themselves.

The bill appears to be aimed at the dark market, which IMO should not be permitted to exist (these guys can trade on the exchange with everyone else).

[CitricAcid]

Originally Posted by brewer12345

I am admittedly a bit hazy on the exact mechanics, but I believe there are two markets. One is the exchange-traded futures market, where much of the volume goes and which is reasonably tightly regulated by the CFTC. The exchanges also force traders to put up collateral to back their positions, which is marked to market frequently.

The other is the dark market. This is the back alley where nobody really knows how much volume there is. This is a "market" of over the counter trades between a trader and an intermediary (Goldman Sachs, etc.). Since it is off the exchange, the CFTC doesn't regulate it and there is no exchange to force the traders to hold suffcient collateral, although presumably the intermediary does so in order to protect themselves.

The bill appears to be aimed at the dark market, which IMO should not be permitted to exist (these guys can trade on the exchange with everyone else).

Did not notice that provision/target of it, is this the same "loophole" that was opened in, I believe, 1999 to allow energy traders at Enron to corner the California energy market or somewhat along those lines?

[eridanus]

There are dark markets for both SEC regulated instruments and CFTC instruments. They're anonymous matching systems, which is why they're used. A large holder can dump stock without everyone following.

[Leonidas]

Originally Posted by brewer12345

The other is the dark market. This is the back alley where nobody really knows how much volume there is. This is a "market" of over the counter trades between a trader and an intermediary (Goldman Sachs, etc.). Since it is off the exchange, the CFTC doesn't regulate it and there is no exchange to force the traders to hold suffcient collateral, although presumably the intermediary does so in order to protect themselves.

Another component of this is supposed to be the use of ICE terminals that allow someone on that exchange (in London) to trade commodities here. If I remember correctly, there is a way for US traders to go to the ICE and use the terminal system to trade back here in US commodities on our markets without CFTC regulation.