As Republicans aim to unite two incendiary energy issues by warning that U.S. EPA could drive up gas prices, Democrats are turning to their own dual argument -- one that links oil-futures markets to fuel costs and attacks the GOP for proposing to cut the regulation of "speculators."
Pinning an increase in gas prices on oil speculation is not a new maneuver for Democrats, who made similar calls for stricter regulation by the Commodity Futures Trading Commission (CFTC) when gasoline hit $4 per gallon in the summer of 2008. But the Democratic return to blaming pump prices partly on Wall Street comes as Republicans press to cut CFTC's budget by one-third, giving Democrats a fresh pushback against the GOP message that reining in EPA would help drive gas costs down.
"There is no question" that speculation is playing a role in the rise in gas prices, Rep. Barney Frank (D-Mass.), who empowered CFTC to crack down on oil futures traders in last year's financial reform law, said in an interview.
The $56 million cut to CFTC included in the House GOP's continuing resolution (CR), which passed Feb. 19, means the commission would "lose the ability to restrict that speculation," added Frank, the top Democrat on the House Financial Services Committee.
Many in Frank's party have hammered home that point in recent days. The House Democratic leadership circulated a memo last week that warned the GOP-backed CR would require CFTC to cut its staff by "about 2/3," diminishing its power to "monitor the energy markets for fraud and manipulation, which could lead to higher oil prices."
Rep. Rosa DeLauro (D-Conn.), a member of the House Agriculture Appropriations Subcommittee that has jurisdiction over CFTC, recalled yesterday that "even the threat of the specter of that kind of restriction several years ago brought [oil] prices down."
Rep. Joe Courtney (D-Conn.), who has pushed for stronger oil-futures limits since 2008, yesterday honed the CFTC funding cuts into a political weapon.
"Republicans in the House today are again shouting 'Drill, Baby, Drill'," Courtney wrote in a Huffington Post op-ed, but "rising gas and oil prices are not a result of too little supply. They are a result of trepidation over the future of the Middle East ... fanned by speculators who profit as middle-class Americans pay more at the pump."
And not every Republican dismisses speculation as a factor in the rising cost of a full gas tank.
Rep. Ed Whitfield (R-Ky.), a senior House Energy and Commerce Committee member, recalled prior oil-speculation hearings and said "there was no question that that had some impact" on the 2008 uptick. "I think there is a combination of reasons for the recent spike," he said in an interview yesterday.
Rep. Mike Simpson (R-Idaho), chairman of the House Appropriations subpanel in charge of EPA and the Interior Department, said policies at the departments he oversees play a role in rising prices but agreed that speculation does as well.
"Traders look out and see what's about to potentially happen, so it has to do with speculation," Simpson said in an interview. "That adds to the overall equation."
Policy concern or political line?
The chief House agriculture appropriator, Rep. Jack Kingston (R-Ga.), is poised to hear from CFTC chief Gary Gensler today on his request for a budget bump in 2012 to implement the commodity-trading limits that were part of the financial reform law passed last year.
Kingston signaled he would seek the commission's perspective on the impact of futures trading on oil prices but said "a lot" of Democratic anti-Wall Street warnings were motivated chiefly by politics.
"If you can tell me with absolute certainty what speculation does [to prices], I'm willing to listen," he said in an interview. "You can ask this question over and over again and get different opinions from very smart people."
During his previous meetings with CFTC officials, Kingston added, the issue of oil speculation only came up when he asked about it. Though "everybody wants to say ... 'here's my bumper-sticker solution to bring oil prices down,'" the Georgian said, "it's not that simple."
On that point, many Democrats would agree. When House Republicans began contending that their legislation blocking EPA greenhouse gas emissions rules would prevent gas-price spikes, many in the president's party pointed to unrest in the Middle East as a primary factor in rising oil costs (E&E Daily, March 11).
There is not "any kind of short-term" link between the agency's emissions regulations and gas prices, said Rep. Collin Peterson (D-Minn.), an original co-sponsor of legislation to block those EPA rules. "If you added all the costs of maintaining existing infrastructure," he added, there could "conceivably" be a relationship in the very long term.
Other Democrats yesterday pushed legislation that would require oil companies to use lands they lease but have not yet developed. One member of that group, Sen. Bill Nelson (D-Fla.), called for a "multi-pronged approach" that would include speculation and more incentives to look for oil on leased land.
"The legitimate users of oil that want to hedge, such as airlines and shipping companies," have diminished their dependence on oil futures by 20 percent so far this year, Nelson told reporters. "But the price of oil futures contracts has gone up 35 percent in that same period of time, as a result of the speculators running up the price."
CFTC missed its January deadline to impose limits on the number of energy futures contracts a single trader can hold, restrictions that commission member Bart Chilton had long linked to the three-year-old oil and gas price spike (E&E Daily, Dec. 15, 2010). Chilton released data this week that showed hedge funds and other market players swelling their positions in energy commodities by 64 percent when compared with June 2008.
"So what's the GOP doing?" the Center for American Progress Action Fund wrote yesterday in a memo on the CR's CFTC funding cut. "Voting to take the cop off the beat."
Whether that political invocation of CFTC as the two parties clash over gas prices will help shield the commission's budget remains to be seen. Several conservative Republicans yesterday shrugged off the role of oil speculation in pushing up fuel prices, instead taking aim at the Obama administration's stance on offshore drilling.
Any Democrat who blames oil-futures traders for higher prices "should invest and go short," Rep. Steve King (R-Iowa) said in an interview. "Yes, there are speculators who hedge in the short term, but they reduce the swings that would come if you didn't have speculators."
Oil prices, as Rep. Jeff Landry (R-La.) put it yesterday, are governed by a "free market" that runs on supply and demand.
"If it was just the speculators" behind rising oil prices, Landry told reporters, "why would [the president] be thinking about releasing the Strategic Petroleum Reserve? ... Because behind the scenes, he understands that the more you increase the supply, the lower the price will be."
Reporters Sarah Abruzzese, Katie Howell, Jeremy P. Jacobs, and Phil Taylor contributed.