Under continued attack from Republicans for high oil and gasoline prices, President Obama unveiled on Tuesday a slate of measures to crack down on financial speculation in energy-futures trading, which Democrats say helps drive up prices.
But while a Rose Garden announcement gave the president a platform to be seen calling for action on fuel prices, it’s not clear whether financial speculation is even a major contributor to oil and gasoline prices—or whether the administration’s proposals could have any real impact on the price at the pump.
As the president himself has pointed out numerous times, energy experts say that the chief drivers of oil prices are factors beyond the U.S. government’s control: global supply and demand and political unrest affecting oil-producing nations.
“More than anything, today’s announcement serves a political purpose: It offers the president a way to assure voters that he is looking out for their interests,” wrote Kevin Book, an analyst for Clearview Energy Partners, in a note to clients.
But as gasoline prices shot up to record seasonal highs this spring, Republicans and conservative super PACs have placed the blame for pain at the pump on Obama and Democrats. The attacks have been effective: Polls have shown that voters blame Obama most of all for the high price of gasoline. In return, Democrats have lobbed back with accusations of oil-price villains of their own—Big Oil and unscrupulous financial speculators.
None of those accusations have much accuracy. In 2008, an investigation by the Commodity Futures Trading Commission concluded that speculation has little effect on the price of oil, which is still largely driven by the fundamentals of supply and demand.
Since then, the Obama administration has taken many steps to further regulate energy and other commodities trading. The CFTC has moved to close loopholes that allowed financial speculators in oil futures to trade in electronic overseas markets, while the 2010 Wall Street reform law further limited trading positions in oil-futures markets.
When gasoline prices rose last year in the wake of the Arab Spring, the president ordered Attorney General Eric Holder to convene a task force to further look into oil-price manipulation.
On a conference call with reporters on Tuesday, White House officials conceded that it’s not known how much speculation contributes to the price of oil, or how much the proposed new measures will make a difference. The idea, said a White House official, is to increase oversight in order to catch and deter any financial activity or manipulation that could contribute to high prices.
“The important issue here is that at times when you see prices increase you see increased volatility and trading,” said a White House official, who spoke on condition of anonymity. “It’s making sure you have maximum oversight to deter manipulation.… If there is action the administration could take that could help alleviate the problem then they will look for opportunities to do that.”
The official added: “There are concerns about inadequate oversight in our energy markets and lack of cops on the beat.”
Obama's plan included sending Congress a bill that would support a six-fold increase in funding for surveillance and enforcement staff for oil-futures trading; increased funding for IT upgrades to strengthen monitoring of electronic trading in energy markets; increased civil penalties for manipulation in key energy markets; higher margin requirements in oil-futures markets; and expanded access to CFTC data to better understand trading trends in oil markets.
Those aren’t particularly controversial proposals, but in today’s hyper-partisan Congress they have little chance of passing.
“None of the proposals being trotted out by the Democrats have any chance of passage. They know that,” said Robert Dillon, a spokesman for Republicans on the Senate Energy and Natural Resources Committee. “This is all about election-year politics and simply trying to make the other side look bad. We should, and could, be working on a real energy bill, but instead we’re talking about the supposed evils of the free market.”
But if Democrats can gain political traction—if not any substantive change—they can blame Republicans for blocking the bill. It’s hardly the first time they’ve used that strategy: last month, Obama sent a bill to the Senate to end tax breaks for Big Oil. The bill stood no chance of passage, but Democrats have used the issue as a way to go after vulnerable incumbent Republicans seeking reelection this fall.
“Blaming Wall Street is easy. Solving high oil prices is hard,” wrote Book, the energy analyst. “But looking like you don’t want to solve high oil prices is politically dangerous."
“Democrats will have no shortage of press coverage from today’s events and Republicans who oppose the measure may find themselves in the challenging position of looking like (a) obstructionists or (b) defenders of oil companies and/or financial investors—two groups with limited public support right now, and that could undercut some Republicans’ political countermeasures to the regulatory and enforcement actions.”
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