Obama Down to Brass Tacks Regulating Big Oil

by John M. Curtis
(310) 204-8700

Copyright April 16, 2012
All Rights Reserved.                                         

              Putting teeth into his energy policy, President Barack Obama called for greater scrutiny of the oil industry after pump prices rose about 20% over the first four months of the year.  Barack wants Congress to implement penalties on oil companies caught manipulating markets for what looks like record profits.  If pump prices were only about supply-and-demand, Big Oil wouldn’t periodically yield record profits.  Industry executives often blame increased demand in Asia for the run-up in U.S. pump prices.  Barack wants stricter controls and more government oversight of market manipulation,  “none of these steps by themselves will bring gas prices down overnight,” said the president in the White House Rose Garden.  “But it will prevent market manipulation and make sure we’re looking out for the American consumers,” pushing Congress to finally demand accountability from Big Oil.

             Every time Big Oil decides to hike pump prices and hit record profits, the economy suffers, with consumers biting the bullet.  Runaway pump prices are another punitive tax on consumers, paid in pre-tax dollars by consumers, inhibiting retail purchases, accounting for some two-thirds of the nation’s Gross Domestic Product.  When Big Oil profits, the rest of the economy suffers.  There’s no escape in the Consumer Price Index from runaway pump prices.  All businesses suffer except the oil industry.  While the White House wouldn’t quantify the fraction of the pump price due to oil industry manipulation, estimates have ranged from 10%-25%.  “You won’t find the administration making projections about the particular impact, or the particular price impact, of any particular policy,” said an unnamed White House official.  “We would leave that to outside analysts to detangle.”

               Republicans responded skeptically to Obama’s new crackdown on the oil industry.  Back in 2001-02, former President George W. Bush and Vice President Dick Cheney blamed California’s rolling blackouts purely on demand exceeding supply.  They knew that now defunct Enron Corporation among other Texas power suppliers turned off the power and drove prices through the roof.  “Listen, the president has all the tools available to him if he believes that the oil market is being manipulated,” said House Speaker John Boehner (R-Ohio), knowing full well the president’s hands are tied with respect to controlling industry profits and runaway pump prices.  “Where’s his Federal Trade Commission?  Where’s the SEC?  He’s got the agencies there,” blaming Obama for not using the existing regulatory scheme.  In truth, there’s no real policing of oil industry’s practices.

             Treading on thin ice, Obama’s plan to scrutinize the oil industry could cost him mightily in campaign contributions.  Oil industry executives have no patience for someone striking a raw nerve with how the wheels really turn behind the scenes.  “So, instead of just another political gimmick, why doesn’t he [Obama] put his administration to work to get to the bottom of it?” asked Boehner, knowing again that Big Oil too often gouges consumers to maximize profits and harms the economy.  Republicans find themselves supporting Big Oil, urging the White House and Congress to get off the backs of the oil industry.  When demand dries up, it’s curious how Big Oil drops prices to stimulate more consumption.  Most GOP politicians, including presidential nominee former Massachusetts Gov. Mitt Romney, support Big Oil’s right to charge whatever the market will bear.

             Most economists believe that runaway pump prices harm the economy by restraining consumer spending.  What’s good for Big Oil isn’t good for the overall economy.  Obama wants Congress to boost spending to the Commodity Futures Trading Commission [CFTC] to give the agency the resources needed to manage traders driving the uncontrolled speculation in oil markets.  Asking for $52 million, Barack hopes to expand enforcement six-fold, providing the technology needed for responsible enforcement.  Barack would like to see the margin requirements increased, flushing some of the rampant speculation from trading floors.  “You want the CFTC to have more cops on the beat, but there’s a confusion here.  They really have to focus on speculation,” said Dennis Kelleher, president and CEO of Better Markets, a nonprofit that protects the public interest in capital and commodity markets.

             Calling Obama’s attempt to regulate commodity markets an “election year gimmick,” 62-year-old Boehner shows he isn’t serious about containing runaway pump prices.  Boehner knows that the FTC and SEC have little or no jurisdiction over oil trading, doing next to nothing to contain runaway pump prices.  Whatever the timing or motive of Obama’s move, reining in Big Oil is the only way to contain a growing threat to the U.S. economy.  High pump prices harm the economy by punishing consumers, leaving less cash to fuel the nation’s sluggish GDP.  While it’s true Obama must keep the stock market and economy rolling between now and the election, it’s also true that Big Oil shouldn’t be allowed to tank the economy.  Whatever fraction of pump prices stem from speculation or manipulation, Obama’s done the right thing forcing the oil industry to be more accountable.

John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com.and author of Dodging the Bullet and Operation Charisma.       

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