Obama pushes oil market manipulation proposal to counter high gas prices

President Obama, in his latest effort to limit the political fallout from high gasoline prices, on Tuesday challenged Congress to pass legislation to ensure speculators aren’t manipulating energy markets.

“We can’t afford a situation where speculators artificially manipulate markets by buying up oil, creating the perception of a shortage and driving prices higher, only to flip the oil for a quick profit,” Obama said during a Rose Garden speech Tuesday.

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“We can’t afford a situation where some speculators can reap millions, while millions of American families get the short end of the stick.”
Republicans, who have battered the president over high gas price for months, quickly dismissed the plan as a political gimmick, arguing that the federal agencies already have the ability to prevent manipulation.

“President Obama’s government-by-gimmick is reaching another new low today,” GOP presidential hopeful Mitt Romney said in a statement. “While American families struggle to pay gas prices that have doubled on his watch, the president’s only solutions are to target oil and gas producers for higher taxes and now to dramatically increase federal regulation.”

Obama’s proposal is unlikely to pass the House and faces major hurdles in the Senate, amid major opposition from Republicans. But Senate Majority Leader Harry Reid (D-Nev.) said Tuesday he is working with the White House on legislation based on the five-point plan, which would boost funding and resources at the Commodity Futures Trading Commission (CFTC), the federal agency responsible for monitoring energy futures markets.

The plan marks the latest push by the White House to convince the public that Obama is doing everything he can to rein in high gasoline prices, amid recent polls that indicate the issue could hurt the president going into the election.

Gasoline prices have risen sharply this year, but dropped slightly in recent days to a national average of $3.90, according to AAA.

The president, earlier this year, said he was tasking Attorney General Eric Holder with “reconstituting” a Justice Department-led panel formed in 2011 to explore potential manipulation that might affect gasoline prices.

But it is unclear how much market manipulation is to blame for high gas prices.

An investigation by a CFTC task force, conducted in 2008 when gasoline prices reached an all-time high, found little evidence to “support the proposition that speculative activity has systematically driven changes in oil prices.”

Still, the plan won the backing of CFTC Chairman Gary Gensler, a Democrat appointed by Obama.

Brian Deese, deputy director of the National Economic Council, told reporters at the White House Tuesday that the administration is working aggressively to identify cases of market manipulation.

“I would say that if you look over the past year, the CFTC has opened cases against ... energy firms for potential manipulation,” Deese said. “The [Federal Trade Commission] has an open investigation into potential anticompetitive behavior by oil refiners. And so we are actively, as an administration, deploying the tools at our disposal to try to identify those instances.”

Deese said that inadequate oversight of oil futures markets “creates opportunities for illegal activity,” adding that the administration is working to do “everything that we can to be responsible and to deter that type of activity.”

In an effort to counter those who downplay the role that manipulation plays in raising oil and gasoline prices, Obama pointed to Enron, the former Texas-based energy company.

“And for anyone who thinks this cannot happen, just think back to how Enron traders manipulated the price of electricity to reap huge profits at everybody else’s expense,” he said during his remarks Tuesday.

Obama took several shots at Republicans in Congress, arguing that GOP efforts to repeal the Dodd-Frank financial reform law would preclude the administration from preventing manipulation that could cause gasoline price spikes.

“So I’d point out that anybody who’s pledging to roll back Wall Street reform, Dodd-Frank, would also roll back this vital consumer protection along with it,” Obama said. “We should strengthen protections for American consumers, not gut them.”

Obama’s remarks come amid aggressive Republican attacks on the president’s energy policies. The GOP has worked for months to pin the blame for high gasoline prices on the White House, arguing that the administration isn’t doing enough to expand domestic oil-and-gas production.

The president, in a slew of high-profile energy speeches in recent weeks, has sought to undercut GOP criticisms, touting his “all-of-the-above” energy plan and highlighting his administration’s efforts to expand drilling.

But Obama acknowledged Tuesday that his plan to increase oversight of energy markets likely won’t have a short-term effect on gasoline prices.

“Let me close by saying none of these steps by themselves will bring gas prices down overnight,” Obama said. “But it will prevent market manipulation and make sure we’re looking out for American consumers.”

The president’s pl an calls on Congress to back a six-fold increase in funding for CFTC staff charged with overseeing oil futures trading. Obama also called for funding for advanced technology at the CFTC to better monitor energy markets.

Obama urged Congress to increase civil penalties on firms found to be manipulating the market, from $1 million to $10 million. Those penalties would be imposed for every day the violation occurs, rather than per violation, as they are now. He likewise called for an increase in criminal penalties from 
$1 million to $10 million.

In addition, the president pressed Congress to increase margin requirements, or the amount of collateral that traders must post, in oil futures markets.

Lastly, Obama said the administration plans to better analyze CFTC data to identify potential manipulation. The last part of the plan does not require action by Congress.