U.S. Commodity Futures Trading Commission takes steps to make oil and gasoline prices more transparent

American Trucking Associations supports measures, but Senate Committee panelists offer a different take

Jeff Berman, Group News Editor -- Logistics Management, 6/9/2008

ARLINGTON, Va.—The American Trucking Associations said earlier this month that it commends the steps taken by the U.S. Commodity Futures Trading Commission (CFTC) to increase the transparency of the energy futures market and to ensure that oil and gasoline prices are driven by supply and demand.

This news comes at a time when oil and gasoline prices continue to rise and make conditions difficult to navigate for shippers and carriers alike. At press time, the price of a barrel of oil was $135.90, according to New York Mercantile Exchange. And the price per gallon of diesel was $4.773, according to the Daily Fuel Gauge Report from the Oil Price Information Service and Wright Express.

The CFTC said these initiatives will “expand the amount and quality of information received from energy traders to further the integrity and oversight of our nation’s futures markets,” and it also noted that the ongoing daily increases in the price of crude oil traded on futures exchanges make these efforts essential.

Some of the initiatives announced by the CFTC include: expanded international surveillance information for crude oil trading; increased transparency of trading in U.S. energy markets; and a continuation of the CFTC’s ongoing nationwide crude oil investigation.

ATA Vice President and Chief Economist Bob Costello told LM that these steps taken by the CFTC could eventually have a positive effect in light of the current run up in oil and gas prices, but at the same time it will not be without its challenges.

“In the longer-term, any policy changes that will help ensure that supply and demand determine the price of crude oil will be beneficial to motor carriers and shippers,” said Costello. “If tight supply and/or strong demand create high prices, then we can make other policy changes (e.g., boost domestic production and/or lower usage) to counter those developments. However, if speculation is driving up the price of crude without regard to supply and demand changes, it is harder to adapt.”   

But even though the CFTC’s initiatives may be a step in the right direction, these efforts may be a case of too little, too late,” commented Tim Radbourne, president of Radbourne Consulting in Adrian, Mich. 

Radbourne said that while increased transparency in the petroleum supply will benefit shippers and carriers, there are some things which are still largely unknown when addressing this situation: how much recoverable oil reserves remain and how much oil consumption is taking place in Chindia (China and India), which he said continues to gain in importance.

“Anytime there is a lack of information, the markets respond in a volatile fashion…expect continued volatility,” said Radbourne.

Despite the calls for transparency by the ATA and the CFTC, Reed Construction Data Chief Economist Jim Haughey said it is implausible that the trading and storage activities of speculators accounts for a substantial share of the recent uptick in oil and gas prices.

“There are fundamental reasons for rapidly rising oil prices: more demand in the developing world, a drawdown of world oil inventories in the last few years,and an unexpectedly large amount of supply and shipping disruption,” explained Haughey. Another reason Haughey cited is the refusal to drill known oil reserves in the U.S., which is prompted by environmental concerns.

And in regards to the recent rise in prices, Haughey said that roughly $30 of the price per barrel of crude oil can be attributed to the depreciation of the U.S. dollar, coupled with the fact that the U.S. is bearing most of the burden of adjusting to higher oil prices.

CFTC efforts blasted at Senate hearing: A report from the Oil Price Information Service (OPIS) on a hearing held last week by the Senate Committee on Commerce, Science, and Transportation said that the CFTC’s efforts are not nearly enough to help curtail the current situation.

In the OPIS report, Michael Greenberger, a University of Maryland law professor and former director of trading and markets for the CFTC, said that CFTC’s intention to obtain more information about activity in U.S. crude futures traded on exchanges overseen by boards of trade in London and Dubai was an “abdication of its responsibility…and an outrage.”

And committee chair Senator Maria Cantwell (D-Wash) added in the OPIS report that she intends to introduce legislation that would force the CFTC to fully regulate all energy trading of U.S. energy commodities if it did not expand on what the CFTC plans to do. Cantwell said that limits on large speculators and full collection of trader information from foreign boards of trade and an enforcement mechanism for that collection is needed.