Connecticut residents suffering at the gas pump should know that it is industry speculation, rather than supply and demand, that has gas prices around $4 a gallon, U.S. Rep. John Larson said Tuesday.
Were it not for speculation and the dropping value of the American dollar, the price of gas would be closer to $2.50, said Executive Director Gene Guilford of the Independent Connecticut Petroleum Association.
“What’s happening all across this country and here in the state of Connecticut is these prices are being artificially driven up by speculators,” Larson said.
The Congressman pointed to testimony from Exxon CEO Rex Tillerson before the U.S. Senate where he admitted that if it were based solely on supply and demand, the price of a barrel of oil should cost between $60 and $70. On Tuesday morning a barrel of oil was trading at between $102 and $116.
Guilford recalled recent fluctuation in oil prices: on February 1, the wholesale price of gasoline in New Haven Harbor was $2.55, by mid-May that had risen to $3.42.
But just this weekend Goldman Sachs predicted the price of a barrel of crude oil will rise to $135 and the price of gasoline to $5, he said.
“This morning, on these markets because Goldman said jump, people are now voicing, ‘how high?” he said.
Larson questioned the allegiance of conservatives in the Republican-controlled House, who he said have recently been trying to derail Wall Street reform laws passed by the last Congress.
He condemned a move last week by Republicans on the House Financial Services Committee to delay the implementation of the Dodd-Frank bill, which was aimed at deterring abusive oil speculation practices. Those regulations were scheduled to go into effect this July. That would be delayed one year by the proposal.
“To postpone the positions in that bill that would reign in speculation is inane. It makes no sense,” he said.
The U.S. House Appropriations Committee also recommended cutting $30 million from the budget of the Commodity Futures Trading Commission, the group that regulates such practices, Larson said. That news came the same week the commission brought federal charges against five oil speculators, accusing them of willfully manipulating the cost of crude oil for profit.
“Prosecutors finally have brought speculators to court. Now Republicans in Congress are proposing cutting that budget by 30 percent? That’s incredible. This is a time when we need more regulation,” he said.
Larson said now is not the time to be cutting funding to the agency, which consists of about 600 people and operates with a budget of $168 million.
Despite being a small agency by federal standards, Guilford said the CTFC has the responsibility of overseeing a $600 trillion commodity market. But House Republicans now want to cut $57 million from the agency’s budget and force layoffs, he said.
“The answer for Republicans as the agency of the federal government is about to bring down manipulation in the crude oil market is—wait, not yet,” he said.
Larson admitted there is not much that can be done to stop the proposal from leaving the House but said he’s confident it can be defeated in the Democratic-controlled Senate. But Larson said he would like to encourage a grassroots movement against market manipulation.
“I think the American public needs to be educated to the fact of how much money is spent in Washington to stop usually consumer-oriented legislation, like the Dodd-Frank bill. That was lobbied against severely and now as the regulations and implementation is coming into effect, the lobbying is still going on,” he said.
Larson said that if all else fails, oil prices could be dropped by drawing down the strategic oil reserves maintained by the U.S. Department of Energy. Flooding the market takes away some of the ability of spectators to take advantage of the system, he said.
President Barack Obama has been hesitant to use that option, however. Larson said he understands why—in this case supply and demand is not the problem, so increasing supply is not really an answer. A better way to address the issue would be to bolster the CFTC, rather than cut it, and implement the Dodd-Frank act on time, he said.