The increased cost of oil and gasoline is damaging the American economy and is causing severe economic pain to millions of people, especially in rural America, who often have to drive long distances to work. Many workers are already seeing stagnant or declining wages and high gas prices are just taking another bite out of their paychecks.
People in Vermont and across the country are also worried about the high price of heating oil for the coming winter.
The price of oil, while declining somewhat in recent weeks, was still over $95 a barrel today. That's about $30 higher than it was two years ago.
The theory behind the setting of oil prices is that price is determined by the fundamentals of supply and demand. The fact of the matter is that there is more supply and less demand today than there was two years ago when gas prices averaged about $2.44 a gallon.
While we cannot ignore the fact that big oil companies have been gouging consumers at the pump for years and have made almost $1 trillion in profits over the past decade, there is mounting evidence that the increased price of gasoline has nothing to do with supply and demand and everything to do with Wall Street speculators jacking up oil and gas prices in the energy futures market.
Ten years ago, speculators only controlled about 30 percent of the oil futures market. Today, Wall Street speculators control more than 80 percent of this market, even though many of them will never use a drop of this oil. Their only function in this process is to make as much money as they can, as quickly as they can.
Don't just take it from me. Let me quote from a June 2 article in the Wall Street Journal: "Wall Street is tapping a real gusher in 2011, as heightened volatility and higher prices of oil and other raw materials boost banks' profits... by 55 percent in the first quarter."
The CEO of Exxon-Mobil, Rex Tillerson, in response to a question at a Senate hearing, estimated that speculation was driving up the price of a barrel of oil by as much as 40 percent. The general counsel of Delta Airlines, Ben Hirst, and the experts at Goldman Sachs have all said that excessive speculation is causing oil prices to spike by 20-40 percent. Even Saudi Arabia, the largest exporter of oil in the world, told the Bush Administration back in 2008, during the last major spike in oil prices, that speculation was responsible for about $40 of a barrel of oil.
In other words, the same Wall Street speculators that caused the worst financial crisis since the 1930s through their greed, recklessness, and illegal behavior are ripping off the American people again by gambling that the price of oil and gas will continue to go up, and up, and up.
Sadly, the spike in oil and gasoline prices was entirely avoidable. The Wall Street reform Act, Dodd-Frank, required the Commodity Futures Trading Commission to impose strict limits on the amount of oil that Wall Street speculators could trade in the energy futures market by January 17 of this year.
Almost five months later, the CFTC has still not imposed those speculation limits. In other words, the chief regulator on oil speculation is clearly breaking the law and is not doing what it is supposed to be doing.
Last month, six other senators and I held a meeting in my office with Gary Gensler, the Chairman of the CFTC.
Unfortunately, I was very disappointed in both the tone of the meeting and the complete lack of urgency at the CFTC with respect to cracking down on oil speculators as required by law. Therefore, today I introduced legislation with Senators Blumenthal, Merkley, Franken, Whitehouse and Bill Nelson to end excessive oil speculation once and for all. I am also pleased to announce that Congressman Maurice Hinchey will be introducing this legislation in the House.
This legislation mandates that the Chairman of the CFTC take immediate actions to eliminate excessive oil speculation within two weeks.
1) Our bill requires the Chairman of the CFTC to establish speculative oil position limits equal to the position accountability levels that have been in place at the New York Mercantile Exchange since 2001.
2) Our bill requires the Chairman of the CFTC to double the margin requirements on speculative oil trading so that Wall Street investment banks back their bets with real capital.
3) Under our bill, Goldman Sachs, Morgan Stanley, and other Wall Street investment banks engaged in proprietary oil trading would be classified as speculators, instead of bona-fide hedgers; and
4) The Chairman of the CFTC would be required under this bill to take any other action necessary to eliminate excessive speculation and ensure that the price of oil accurately reflects the fundamentals of supply and demand.
I am pleased to announce that this legislation already has the support of a diverse group of organizations representing small businesses, fuel dealers, consumers, workers, airlines, and farmers including: Americans for Financial Reform; the Consumer Federation of America; Delta Airlines; the Gasoline & Automotive Service Dealers of America; the International Brotherhood of Teamsters; the Main Street Alliance; the National Farmers Union; the New England Fuel Institute; Public Citizen; and the Vermont Fuel Dealers Association, just to name a few.
I want to thank Michael Trunzo the president & CEO of the New England Fuel Institute; Sean Cota the President and Co-Owner of Cota & Cota Oil; Robert Weissman the president of Public Citizen; and Professor Michael Greenberger from the University of Maryland School of Law for their leadership on this issue and for their hard work in building this diverse coalition to end excessive oil speculation.
The American people are hurting, especially in rural states like Vermont. We need action and we need it NOW.