Cantwell, Murray among senators asking for action on gas prices

Twelve U.S. senators — including Washington state Democrats Maria Cantwell  and

Patty Murray — are  calling on federal commodities regulators to rein in speculation on oil, which  they say is driving up gasoline prices.

In a letter to Gary Gensler, chairman of the U.S. Commodities Futures Trading  Commission, the senators are asking for increases in margin requirements for  speculative oil contracts. Such power over the commodities exchanges was granted  to the commission in legislation passed last year.

"There is strong evidence the recent surge in gas prices has little to do  with the fundamental supply and demand for oil," the senators wrote in the  letter. "Government data confirm that oil speculators are driving the price  increase.

"We urge you to restore integrity to our energy markets by exercising the  CFTC's authority to require higher margin levels for speculative oil futures  contracts."

Margin is the amount of money a person puts up to buy futures contracts. With  stocks, one can trade on up to 50 percent margin, buying $100,000 worth of stock  with $50,000 collateral. Wall Street traders, under current rules, may post as  little as 6 percent of the value of the futures contract, according to the  senators.

Cantwell, who pushed for increased regulations on futures trading, said it's  time for action.

"Washington drivers are paying at the pump for reckless Wall Street oil  speculation," Cantwell said in a statement. "Last year, we gave the financial  cops the tools they need to rein in rampant Wall Street speculation. Today,  we're asking them to put those tools to use. It's time for Wall Street to stop  the reckless gambling on what it costs for Washingtonians to fill up their gas  tanks."

The letter from the 12 Democratic senators describes how speculators are  seizing on political turmoil in North Africa and the Middle East to drive up  energy prices. Since protests began in Egypt on Jan. 25, money managers have  increased their long positions in NYMEX West Texas Intermediate crude oil  futures by more than 35 percent — or the equivalent of 75 million barrels of  oil. On the Intercontinental Exchange, they have increased their long positions  by 50 percent. (A "long position" is an expectation that the commodity will go  up in value.)

Meanwhile, true hedge traders have reduced their long positions in the  futures markets, the letter said.

The result of this kind of trading, the senators said, was to drive up  gasoline prices, giving Americans less money to spend on basic needs.

Robert Dillon, spokesman for the Republican staff of the Senate Energy and  Natural Resources Committee, said the market responds to production  uncertainties with higher prices.

"But putting limits on the free market isn't going to change the fundamentals  of supply and demand," Dillon said. "We should instead be producing more of our  own resources and relying less on foreign imports to meet our energy needs."

The Dodd-Frank Wall Street Reform and Consumer Protection Act placed limits  on speculative positions and removed prohibitions on certain actions by the  futures commission.

"Now is the time to exercise that authority," the senators said. "New margin  requirements could take effect as soon as July, but the CFTC must begin the  rule-making process now. Higher margin levels would reduce incentives for  excessive speculation by requiring investors to back their bets with real  capital."

Consistent with exchange policies, the higher margins should apply only to  speculators, not to investors or bona fide hedgers, the letters states.

In addition to Cantwell and Murray, signatories are Sens. Sherrod Brown,  D-Ohio; Barbara Boxer, D-Calif.; Al Franken, D-Minn.; Jeff Merkley, D-Ore.;  Robert Menendez, D-N.J.; Sen. Mark Begich, D-Alaska; John D. Rockefeller,  D-W.V.; Carl Levin, D-Mich.; Barbara Mikulski, D-Md.; and Bill Nelson,  D-Fla.

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