{"blocks":[{"type":"paragraph","data":{"text":"

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"}},{"type":"paragraph","data":{"text":"On Tuesday, Rep. Alan Nunnelee (R-Miss.) asked the question on the mind of every driver in America."}},{"type":"paragraph","data":{"text":"What was to be done about record-high gas prices, and wasn’t it a goal of the Obama administration to lower them?"}},{"type":"paragraph","data":{"text":"“No,” was the bizarre answer of Energy Secretary Steven Chu."}},{"type":"paragraph","data":{"text":"“The overall goal is to decrease our dependency on oil, to build and strengthen our economy. We think that if you consider all these energy policies, including energy efficiency, we think that we can go a long way to becoming less dependent on oil and [diversifying] our supply and we’ll help the American economy and the American consumers.”"}},{"type":"paragraph","data":{"text":"In other words, windmills and fairy tales."}},{"type":"paragraph","data":{"text":"But it’s not just Democratic policies that are helping to keep gas prices high. Though Republicans are pushing for greater domestic production and projects like the Keystone pipeline — moves that will help with supply in the long run — they also generally oppose the short-term solution of reining in Wall Street speculators."}},{"type":"paragraph","data":{"text":"The American consumer has enemies on both sides when it come to the price of gas."}},{"type":"paragraph","data":{"text":"An outspoken voice on this topic has been Bart Chilton of the Commodities Futures Trading Commission. Last year, Chilton noted that since 1990, oil speculators have doubled their share of the market, now accounting for 68% of oil traders."}},{"type":"paragraph","data":{"text":"While the other traders are companies actually interested in taking delivery of oil — like an airline that wants to hedge its reserves — the commodities traders just want to make money. They make bets based on what’s happening the world — unrest in Iran, shakiness in Iraq — and then bid up the cost of a barrel, never expecting or wanting to actually buy that barrel. Chilton collected data that showed 90% of those betting that the cost of oil would go up last year were speculators."}},{"type":"paragraph","data":{"text":"For those who think Chilton, who was appointed by President Bush and reappointed by President Obama, is biased on this, consider that Goldman Sachs itself estimates that roughly 27% of the cost of the price of a barrel of crude can be attributed to traders speculating with leverage."}},{"type":"paragraph","data":{"text":"Chilton estimates that there’s a “speculative premium” of about $23 a barrel, or 56 cents on a gallon of gas."}},{"type":"paragraph","data":{"text":"“That means if you fill up a Honda Civic, the speculative premium costs $7.39 every time you fill-’er-up,” Chilton wrote on the CFTC website. “If you drive a Ford Explorer or F-150, the total is $10.41 and $14.56, respectively."}},{"type":"paragraph","data":{"text":"“If folks fill up once a week, the Civic owner is putting out $384.28 more per year, the SUV owner $541.32 more and the pickup owner $757.12 more,” he continued. “So yes, we’re talking real money and a real drain on families, businesses and our economic recovery.”"}},{"type":"paragraph","data":{"text":"So how do you solve the problem? Turns out there already is at least an attempted solution — a Dodd-Frank law provision would limit how much traders can buy without taking delivery. It unfortunately does not focus on leverage, the artificial demand that drives up prices. But it is a starting point and someone in DC should run with it because the rule hasn’t been implemented yet, and Wall Street is fighting it every step of the way."}},{"type":"paragraph","data":{"text":"Opponents include entities like the Chicago Mercantile Exchange — yes, the same CME that was responsible for performing regulatory audits of politically powerful Jon Corzine commodity merchant and dealer MF Global, where a billion plus dollars are still missing."}},{"type":"paragraph","data":{"text":"The bias of CME is obvious. It’s a public company that generates its profits from oil and energy trading fees, which are higher when the price of crude goes up."}},{"type":"paragraph","data":{"text":"Now, stopping speculation isn’t a magic bullet. The Obama administration appears to have no coherent energy strategy besides “buy more electric cars.” It needs to increase domestic production of oil and provide incentives for domestic processing into gas. Limiting our exposure to unrest in the Middle East is the only oil strategy that makes sense."}},{"type":"paragraph","data":{"text":"But what’s the downside of passing a rule to limit commodities trading to those who really want to buy oil?"}},{"type":"paragraph","data":{"text":"If leveraged speculation is inflating the price of a barrel, the situation will temporarily get better. If opponents are wrong, the only people hurt will be a few commodities trading desks, and the banks behind them will shift to other profit-making enterprises."}},{"type":"paragraph","data":{"text":"Republican opposition to the Dodd-Frank rule is perhaps understandable, considering they are more likely to trust markets to sort things out — except that the leverage of commodity traders in energy is robbing the country of growth and capital, typically Republican posterboards."}},{"type":"paragraph","data":{"text":"The lack of action by Democrats and the administration is more puzzling, considering they’ll take any opportunity to beat up Wall Street."}},{"type":"paragraph","data":{"text":"Could it be that Chu spoke the inconvenient truth shared by his president — that Democrats don’t really want gas prices to fall? They want a crisis they can put to use."}},{"type":"paragraph","data":{"text":"Jonathon M. Trugman is managing member at Pendulum Capital Management, an asset-management firm in New York City."}}]}

Jonathon Trugman

NypJonathonTrugman@RoundtableIO

A bunch of drips