Oil trade regulation delayed in House Snowe proposal has broad support

AUGUSTA – Before Congress quit for the holidays, U.S. Sen. Olympia Snowe, R-Maine, succeeded in getting Senate passage of her proposal to regulate the oil trading market, but the U.S. House of Representatives refused to consider the measure.

“We were successful in adding it to the Farm Bill,” Snowe said recently. “They are supposed to move forward quickly on naming conferees.”

The House recessed for the holiday break before a conference committee could work out the differences between the Senate and House versions of the Farm Bill. U.S. Rep. Tom Allen, D-Maine, said there is broad support in the House for extending the authority of the Commodity Futures Trading Commission to the unregulated trades.

“I think the prospects are pretty good that there will be an agreement reached in the new year,” he said recently. “There is broad support for this. It would provide transparency and oversight the CFTC needs to monitor these deals properly and prevent greedy speculators from manipulating the market.”

Snowe’s measure would increase oversight of electronic over-the-counter trading of energy commodities, including oil, natural gas, coal and electricity. Snowe said the legislation is really an attempt to undo language Enron and other large energy traders convinced lawmakers to add to the conference report on the Commodity Futures Modernization Act of 2000.

She called it the “Wild Wild West” of trading.

Before 2000, U.S. energy futures were traded exclusively on regulated markets such as the New York Mercantile Exchange. Since then, most trading has moved to unregulated electronic markets.

“That has to stop,” she said. “We have reports that this is part of the reason oil prices have gone up, that it’s more than supply and demand.”

Allen co-sponsored similar legislation in the House, but it was not included in the Farm Bill.

U.S. Sen. Susan Collins, R-Maine, also supports the legislation. She said its importance was underscored during a recent hearing by a subcommittee of the Homeland Security Committee on which she serves as ranking member.

“There is a lack of publicly available data to track the effect of speculation on market prices, and manipulation can go undetected on certain unregulated markets,” she said. “That is why I support expanding the authority of the federal government to oversee energy futures markets and to provide greater transparency to guard against manipulation.”

Collins said the hearings indicated the unregulated trading is one part of the reason energy prices have increased. She said other reasons are increased global demand for crude oil, instability in the Middle East and Venezuela, supply decisions of the OPEC cartel, insufficient U.S. refining capacity and the declining value of the dollar.

U.S. Rep. Mike Michaud, D-Maine, said the entire congressional delegation has heard from Maine truckers and the Maine Oil Dealers Association supporting reregulating of the energy markers. He said they believe unregulated speculation is part of the reason prices are up, and he agrees.

“We will have to deal with this when we get back,” he said recently. “Senator Snowe’s idea in dealing with these commodities is extremely important.”

Snowe believes the legislation has momentum. She points out when she first introduced it in 2006, the trade commission opposed the measure, but recently has endorsed its passage.

“They need this authority,” she said. “We don’t know the identity [of the traders]. We don’t know the number of transactions, but what we do know is it is driving up the price [of oil].”

The legislation is modeled on the requirements that apply to traders that do business on the New York Mercantile Exchange. It would require U.S. energy traders who electronically trade futures in the country to keep records and report large positions carried by their market participants in energy commodities for five years or longer.

The bill defines energy commodities to include: coal, crude oil, gasoline, heating oil, diesel fuel, electricity, propane and natural gas.

Like traders of other commodities on the NYMEX, oil futures traders would have to provide records of their transactions to the trade commission, or the Department of Justice, on request.

The legislation also seeks to get a handle on the impact of foreign trading markets by requiring people in the United States, who trade U.S. energy commodities delivered in the United States on foreign futures exchanges, to keep similar records and report large trades.