Senators Durbin, Harkin Hold Hearing on Oil Market Oversight

June 17, 2008 -- WASHINGTON, DC – United States Senators Dick Durbin (D-IL) and Tom Harkin (D-IA) chaired a hearing today to investigate how excessive speculation in the oil market may be contributing to the historic run on oil and gas prices.

The hearing, held jointly before the Senate Appropriations Subcommittee on Financial Services and General Government and the Senate Committee on Agriculture, Nutrition, and Forestry, probed the Commodity Futures Trading Commission’s (CFTC) role in regulating the market and what tools and resources the agency needs to ensure it is able to be a robust market watchdog.

“With the economy in a tailspin and with the average price for a gallon of gas topping $4 across the country, people are asking ‘why is this happening,’” Durbin said. “Is excessive speculation taking place or is it simply supply and demand? The answer is that no one knows and the CFTC lacks the information, resources, and in some cases the legal authority to tell us."

Testifying before today’s joint panel were the chief executives of the New York Mercantile Exchange (NYMEX) and Chicago Mercantile Exchange (CME) as well as the Vice President of the Intercontinental Exchange or “ICE”. Also testifying were representatives of the Consumer Federation of America and the Air Transport Association.

“In the past year, gas costs have risen 30 percent. Consumers are seeing the results of this increase in rising costs for everything from the gas they put in their vehicles to the loaf of bread at the grocery store. We deserve to know why,” said Harkin. “We rely on the CFTC to tell us whether our commodity markets are working or whether manipulation or distortion of markets by excessive speculation is causing price bubbles that should be addressed. With CFTC officials testifying previously that additional resources, including staff, are needed to carry out their oversight responsibilities, Congress has a responsibility to provide them with the resources and authorities they need to do their job. We addressed some of this in the farm bill, but further resources may be needed."

CFTC is the nation’s leading regulator of futures markets; however a lack of resources and weakened authorities have prevented them from being able to gather information and effectively monitor the full breath of the oil market.

CFTC is currently only able to monitor the activity that takes place on US-based exchanges – a fraction of the total market for oil transactions. They are unable to gather information about trades which take place on overseas markets like ICE or on over-the-counter exchanges between firms.

In addition, trading in commodity markets has exploded from nearly 500 million trades in 2000 to over 3 billion trades in 2007. CFTC’s staffing levels, however, have not kept pace. Full-time employee (FTE) levels have dropped over that same period of time from 546 in 2000 to 437 last year – nearly a 21 percent decline. “CTFC simply doesn’t have enough cops on the beat,” Durbin said.

To address these shortcomings, Durbin introduced the Increasing Transparency and Accountability in Oil Markets Act which:
Authorizes new resources for the CFTC – CFTC needs more cops on the beat and better information technology. These 100 new employees would immediately address the staffing shortfalls at the agency, and the technology funding would help the agency update woefully antiquated monitoring and analysis systems. Just two weeks ago, Walter Lukken, Chairman of CFTC said “we could hire 100 people and put them to work tomorrow given the inflow of trading volume. We are doing the best we can in difficult circumstances.”

Improves Transparency in Market – CFTC currently has limited visibility of trades that take place on NYMEX and very little visibility of over-the-counter trades, such as trades from one hedge fund to another, or those that take place on the International Commodities Exchange (ICE) in London. Durbin’s legislation would close the so-called “London Loophole” by requiring all U.S. traders on oil futures markets to report transactions in a detailed manner to the CFTC. The bill also directs the CFTC to investigate the impact of these trades on the price of oil. Finally, the legislation would move the CFTC’s Inspector General’s office out from under the office of the agency’s chairman, giving it clear independence.

Durbin is the Chairman of the Appropriations Subcommittee on Financial Services and General Government – the subcommittee responsible for overseeing the budget of the CFTC. Last month, Durbin chaired a hearing on the budget request for the CFTC.

Last week, at a hearing before the Senate Agriculture Committee, the agency charged with oversight of the agency, CFTC officials testified that additional resources, including more staff, are needed to help this agency carry out this mission.

Source: Senator Dick Durbin

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