Fuel taxes are too high, the American motorist moans, even though taxes in the United States are among the lowest in the world.Luke MacGregor/Reuters
Under fire for high gas prices, Barack Obama has executed a masterful trade. Giving regulators extra leeway to clamp down on oil speculators won't cut the cost of driving, which is up for other reasons anyway. But it should placate voters without hurting markets.
In reality, the U.S. President can't do much to stop $4 (U.S) a gallon – or more – at the pump. That message isn't easily conveyed, however. The Washington Post found that 62 per cent of respondents disapproved of Mr. Obama's handling of gas prices . The Republican solution is to drill in fragile environmental regions even though it would have no meaningful impact on global oil markets.
The tough-talking proposals from the White House won't do much for motorists either. Penalties for market manipulation would rise tenfold to $10-million. More funding for the Commodity Futures Trading Commission would put more speculation cops on the beat. The watchdog would also win the right to ratchet up margin requirements, currently a prerogative of exchanges.
All this presupposes that risk-taking investors are the primary culprit for rising oil prices , giving far too much credit to hedge funds and their ilk. Yes, non-commercial trading in oil has been on the rise. Pushing up prices over the long term, however, requires taking physical delivery of the crude and preventing consumers from getting their hands on it.
This isn't nearly as prevalent as the furor would suggest. A recent analysis by Houston University, located in America's oil capital, estimated speculators were responsible for at most 2.5 per cent of the surge in crude prices between 2006 and 2008, when a barrel went from $63 to over $141. U.S. natural gas speculation is also on the rise, though prices have plunged to 10-year lows.
Beefing up regulatory technology and manpower probably won't impede the market, unlike the way, say, various short-selling bans around the world have done. And since the CFTC wouldn't be mandated to use any extra powers over margin requirements, Mr. Obama's proposals at least stand a good chance of not doing any harm – to him, the wildlife or traders.