Oil Price Inflation

House Budget: The Cost of the Biden-Harris Energy Crisis, September 19, 2024

The need to regulate oil futures became obvious in 2008, when it was found that speculation - rather than physical  supply - was driving oil prices. 

The U.S. Energy Information Administration had reported in 2023 that speculation is a major driver of oil prices.  This study, which reflects the 2008 situation and which has not been taken down since, lays this out in great detail at https://www.eia.gov/finance/markets/crudeoil/financial_markets.php  

In June of 2008, CFTC Commissioner Bart Chilton testified on the Increasing Transparency and Accountability in Oil Markets Act, then under consideration. Sadly, when the Act was passed, investment bankers could not cover their positions, so they dumped their mortgage backed securities - which were also worthless. This brought on the Great Recession and the passage of Dodd-Frank to make sure it would not happen again.

In the waning days of the Obama Administration, the Commodity Futures Trading Commission issued a proposed rule to limit speculation in oil market futures contracts, as well as other derivatives contracts, subsequent to the Dodd-Frank Act. Unexpectedly, Donald Trump was elected President.  

As reported by Robert Pozen of the Brookings Institution, on February 3, 2017, Trump issued one of his “executive order” memoranda that, while they had no effect, set off a chain of events that would gut Dodd-Frank reforms, including those which attempted to regulate oil futures speculation. 

In February 2018, Mick Mulvaney was appointed as the acting director of the Consumer Financial Protection Bureau. His mission was to tear down the Bureau and its recent regulations. The Trump tax reforms were just taking effect. The Financial Times reported that month that ‘Fundamentals do not matter to (a) new breed of oil speculator.’  

On July 31, 2018, the CTFC published a “Notice of Proposed Rulemaking to amend Commission regulation 41.25 to update the position limit rules for SFPs to provide regulatory comparability with equity options, foster innovation by providing a framework for position limits on SFPs that are not covered under the existing rules, and provide flexibility to DCMs in setting position limits for such products.”  In other words, they took their foot off the brakes.  A series of final rules were published and withdrawn, including one issued in the waning days of the Trump Administration - January 14, 2021 - on position limits for derivatives. 

When Russia invaded Ukraine, oil prices shot through the roof - mostly because there was too much money in the speculation sector. Because the Trump tax rates are still in force, undue rewards for speculation are still available - and why energy prices are still above what they should be, given the supply of oil available.

To add injury to injury, Blackrock has led other oil investors in pressuring U.S. oil companies to hold back on increasing supplies in order to keep prices high - and to do so in cooperation with OPEC. The Senate Budget Committee is now investigating reports from the FTC that former Pioneer Oil CEO Scott Sheffield attempted to collude with OPEC to increase prices and profits for his company in doing so. Democrats on the House Energy and Commerce Committee are also investigating.

Perhaps the Committee should keep up with what the other chamber and members of the minority are doing to uncover the truth, rather than playing politics in order to cover up what their side of the aisle is doing to keep oil prices, and with them, inflation high for American consumers.

There is little danger that the current effort to blame inflation of Vice President Harris will affect the election. The main questions are whether the release of all evidence against Citizen Trump on September 26th will cause him to end his campaign; if he stays in, how these disclosures will affect the election; if he leaves, who will the National Republican Committee choose to replace him with - i.e., whether the GOP is stuck with Senator Vance - especially if Ambassador/Governor Haley decides not to save the Party at the last moment.

Attachment: Energy Taxes