Amanda Peterka, E&E Reporter - March 30, 2012 - Rep. Ed Markey (D-Mass.) and Sen. Ron Wyden (D-Ore.) are again going after Wall Street for its role in today's soaring gas prices.
In a letter sent today to the nation's top futures regulator, the lawmakers have asked that the Commodity Futures Trading Commission open an investigation into whether commodity index funds in the oil and energy markets are driving up the price of gas at the pump.
"Commodity index funds are a relatively recent creation, but they are already having an outsized impact on our commodity markets," the lawmakers wrote in a letter to CFTC Chairman Gary Gensler.
Commodity index funds were conceived by Goldman Sachs in 1991 in the wheat market and have since spread to other commodities. According to the nonprofit Better Markets, which the lawmakers quote in their letter, there is now at least $200 billion invested in these speculative funds.
The funds consist of baskets of commodity futures contracts; in the case of oil, they are promises to buy real supplies sometime in the future. But instead of trading them for real oil, traders sell them before their expiration dates five times a year and buy new contracts in a process known as "rolling."
Bankers who sell the funds are protected from price volatility because they make only a deposit on the futures contracts; the rest of client dollars are free to be invested elsewhere.
The rolling process distorts the market, experts have said, by driving up futures prices above actual prices. Commodity index funds have been blamed for the spike in wheat prices before the financial crisis and, according to the lawmakers, are now responsible for driving up the price of oil.
"There is clear evidence that these funds are disrupting both our commodities markets and our economy," Markey and Wyden write.
Markey is the ranking member on the House Committee on Natural Resources, while Wyden is a member of the Senate Committee on Energy and Natural Resources.
The Dodd-Frank Wall Street Reform and Consumer Protection Act gave the CFTC the authority to set limits on the amounts of trading that can be done by a person, or a group or class of traders. The commission's final rule setting position limits on excessive speculation in the energy futures market did not set limits on classes of traders.
"We believe without further delaying the implementation of the position limits rule," the lawmakers wrote, "the CFTC needs to supplement that rule with a new, separate rule that puts specific restrictions" on the funds.
Their comments echo those of Better Markets, a watchdog group promoting financial reform, which a year ago asked the CFTC in public comments to set limits on commodity index funds. Last week, Better Markets CEO Dennis Kelleher called on House members at a Natural Resources Committee hearing to ban commodity index funds altogether.
Markey and Wyden have asked that the CFTC examine whether limits are needed. They have also asked the commission to consider completely banning the funds from the oil and energy commodities markets.Blame Wall Street for drivers' woes at the pump