Why is the price of gasoline rising?
By BART CHILTON
Here we go again. The summer driving season has started, families are readying to take vacations, and gasoline prices are creeping up nationwide toward the $3 mark. It must be due to those “fundamentals,” right? That short-supply, high-demand thing we all learned in high school economics — surely that must be it. At least, if we listen to some economists and oil companies, that’s what they’d have us believe.
Hold on a sec. We’re at 10-year highs in supply in oil, and 10-year lows in demand, and prices are rising, so what is going on? With these kinds of “fundamentals,” why are oil and gas prices rising? Are we going to go through the same thing we went through last summer when oil reached $147 a barrel and gas at the pumps topped $4 a gallon? And who is supposed to watching over this? Doesn’t somebody have some responsibility here?
These are questions that I hear over and over, all over the United States. I have been a commissioner at the Commodity Futures Trading Commissioner for almost two years, and have been at the forefront trying to address issues relating to excessive speculation in energy markets. Let me start with this: While the CFTC isn’t responsible for ensuring high prices or low prices, it certainly is responsible for ensuring that consumers pay fair prices for commodities. And if there are factors that affect the price of a commodity in an unfair way, then it needs to step in — swiftly and aggressively — and stop it.
To put it bluntly, I’ve been disappointed over the past year. We could have done better. We should have at least acknowledged the role that speculators have played in influencing the price of oil. Let me be clear: “speculation” isn’t a dirty word. Speculators are a necessary part of futures markets, and they play a critical and important role in the price discovery process. If, however, a group of entities is affecting the price of a critically important commodity in an uneconomic fashion, the CFTC has a responsibility to investigate and address it. I simply don’t think we stepped up to the plate on this one, and the American consumer — and indeed, our economy — paid the price.
Thankfully, prices fell due, in part I believe, to the threat of legislative action last summer. Speculators left the markets in droves, but again, the CFTC didn’t take concerted action to quantify or qualify this activity in a comprehensive manner. My point is not that speculators were necessarily the sole cause of last year’s price run-up, but clearly, after the run-up and subsequent fall, there are fewer who argue that they had no effect at all. And it’s that issue that we need to address: What is the role of speculators? How large is it, and should it be contained (through limiting the amount they can trade, for example) in a way so as to ensure that there are no negative price effects for consumers?
Key diifference
Here’s one key difference between last summer and this summer: We have a new president. And he’s appointed a new leader at the CFTC, someone who has pledged to address issues of excessive speculation. I have every confidence that Chairman Gary Gensler will use the authorities available to get the job done.
Recently, Sen. Bernie Sanders, I-Vt., proposed legislation regarding the CFTC’s use of emergency authority to address excessive speculation in energy markets. I support not only the use of the agency’s broad and flexible emergency authority as it is currently provided in our statute, but indeed the use of all available authorities — as a regulator and as a prosecutor — to address aggressively any unfair pricing practices in the nation’s energy markets.
It is my hope and expectation that we’ll do a better job this year than we did last year. Given that we’ve seen a 60 percent run-up in gas prices in just the last six months, we need to be particularly vigilant about this.
The American economy — and the American consumer — simply can’t afford to go through what we did last year, rampant run-ups in prices and insufficient federal oversight. We need to hold the hammer over these markets, and if there is any indication whatsoever of improper or uneconomic activity, we need to drop that hammer hard and fast.
X Bart Chilton is a Democratic commissioner on the Commodity Futures Trade Commission, Washington, D.C.