mines prices markets

Heating oil dealers have thrown their support behind a new bill, which aims to curb excessive speculation in oil markets.

Independent senator Bernie Sanders, Vt, introduced the “End Excessive Oil Speculation Now Act” last week. It aims to force the Commodity Futures Trading Commission (CFTC) to introduce immediate regulations to reign in Wall Street traders who buy and sell oil contracts for profit. The new rules were mandated under last year’s Dodd-Frank financial reform act but have become mired in delays.

New England Fuel Institute president Michael Trunzo is part of a coalition that has supported Sanders’ bill. He said soaring oil prices were hitting heating oil customers and dealers alike.

“Despite the fact that it’s summer, the average price for a gallon of home heating oil is currently $3.10,” Trunzo said last week. “For the nearly 2.6 million New England homeowners who use heating oil and the 2,000 mainly small, family-owned and operated businesses that serve them, the current pricing structure is a major financial strain.”

Trunzo said the financial hardship went beyond home heating. “It relates to rising costs of gasoline, transportation and groceries as well. Retail heating oil dealers are facing strained lines of credit with banks and oil suppliers. Our members are finding it difficult to grow their businesses and keep their existing workforce employed, never mind hiring new employees.”

Trunzo said his members were often accused of price gouging and it was difficult for customers to understand that oil dealers did not profit from high commodity prices.

Heating oil companies and other businesses that deal in oil products have traditionally used financial markets to “hedge” against price movements and protect themselves and their customers from financial risk, Trunzo said. But the oil markets were now dominated by financial speculators who traded oil contracts for profit with no intention of taking physical possession of the oil they bought and sold. This had driven up prices beyond what was reasonable based on current supply and demand.

Wall Street speculators now control the petroleum market and their motive is to make money with no intentions of ever taking delivery of a single barrel. Unlike my member companies, who hedge to protect their consumers from volatile prices, speculators use petroleum is an investment vehicle.

Sanders’ bill would help reign in the effect of excessive speculation while the CFTC finalized new “position limits”, which would restrict the amount of influence any one trader could exert over a particular market, Trunzo said. It would also improve transparency and “close loopholes that allow speculators the same trading status afforded to companies that actually take delivery of or use the product.”

Unfortunately, the Commodity Futures Trading Commission is delayed in implementing these protections. We are six months down the road and the CFTC tells us that we are potentially another six months away from the rulemaking. This is unacceptable, as heating oil customers cannot go through another winter of volatile pricing.

The proposed legislation would help – “at least until the CFTC can step-up to the plate, fulfill its obligations and enforce these new rules,” Trunzo said. “This bill is good for my members and it’s good for their customers.”

Oil prices have risen 25 percent in the last year, but pulled back in the last week on concerns that Greece could default on its massive debt and send the global economy back into recession. Sanders’ bill would require federal regulators to take immediate action to help control oil prices and prevent volatile price movements.