ATA Joins Coalition to Defend 2010 Law That Curbs Excessive Oil Speculation

A coalition of oil users that includes American Trucking Associations recently urged congressional leaders to “fully fund and defend” rules in the new financial reform law designed to curb excessive speculation in oil futures.

The “vital regulatory initiatives” contained in the year-old Dodd-Frank Wall Street Reform and Consumer Protection Act “are in serious jeopardy,” said a July 21 letter signed by ATA and the 45 other members of the Commodity Markets Oversight Coalition.

The House has proposed to cut funding for the Commodities Futures Trading Commission — which is tasked with enforcing the oil trading reforms — by 44% from the $308 million the CFTC needs in 2012 in order to regulate oil futures, the coalition’s letter said.

“Without adequate funding, derivatives reform may not be fully enacted and cannot be vigorously enforced,” the coalition said.

“Rules without enforcements are probably not entirely effective,” Rich Moskowitz, ATA’s regulatory affairs counsel, told Transport Topics.

“So, there is a need for staff to ensure that the new regulations are indeed enforceable,” he added. “All of those things require the agency to have an adequate budget.”

The coalition letter was sent to House Speaker John Boehner (R-Ohio), House Minority Leader Nancy Pelosi (D-Calif.), Senate Majority Leader Harry Reid (D-Nev.) and Senate Minority Leader Mitch McConnell (R-Ky.).

“In order for the commission to actually fully implement and enforce the new powers under the Dodd-Frank Act . . . it needs full funding,” said Jim Collura, vice president of government affairs for the New England Fuel Institute.

NEFI is leading the coalition, which also includes the Air Transport Association; Natso, which represents truck stop operators; and the Consumer Federation of America.

“Virtually the entire financial services industry has been lobbying hard” against CFTC rulemaking, Collura said.

The Dodd-Frank legislation passed by Congress in July 2010 gave the CFTC the power to limit positions, the number of oil futures contracts one investor can hold.

Trucking and other industries successfully lobbied for position limits across all trading platforms and for greater transparency in derivatives trading (8-10-09, p. 5).

Such reforms, they said, would allow the CFTC to pinpoint the large speculative trades that cause oil prices to spike but are executed off the commodities exchanges that keep records and impose some position limits.

“We believe that, between the lack of meaningful position limits and the lack of transparency, the price of oil, and as a result the price of the diesel fuel we depend upon, is artificially inflated [by] excessive speculation,” Moskowitz said.

The CFTC is currently discussing what limit to put on oil positions and is writing regulations to track trades. The commission has said it will complete its work by the end of the year.

Until a decade ago, trading in commodity futures was largely the purview of those with a tangible connection to a commodity, as trucking has to oil, the coalition said.

Ten years ago, the letter stated, hedgers with a connection to a commodity outnumbered speculators three to one.

“Today, speculators dominate these markets and this month a CFTC report showed an average of 90% of daily futures trading volumes for the most commonly traded commodities are held by financial speculators,” the coalition said.

Industries such as trucking with a connection to a commodity are allowed to hedge exemptions, meaning trading exchanges allow them to hold more futures positions than they allow investors not connected to the commodity.

Those industries want the CFTC to retain those hedge exemptions at the same time it sets position limits on speculators.

In the view of trucking and others connected to commodities, the speculators have undermined the purpose of the commodities markets, which was to allow commodity users such as trucking firms to hedge, or buy futures, against sudden price increases.

“We hope the Senate will fully fund the CFTC at $308 million as requested and that the House will ultimately side with Main Street over Wall Street,” the coalition stated.