Obama proposes closing loophole to rein in oil speculation

McCain campaign rejects link to law

Email|Print|Single Page| Text size + By Caren Bohan
Reuters / June 23, 2008

CHICAGO - Democratic presidential candidate Barack Obama yesterday proposed measures that he said would crack down on speculation in oil markets and help rein in runaway fuel costs.

A jump in gasoline prices above $4 a gallon has spurred consumer anger and is a top theme in the race between Obama and his Republican rival, John McCain, who has proposed more US offshore oil exploration as a way to boost energy supplies.

"I think everyone believes there's too much speculation in the oil markets," said Governor Jon Corzine of New Jersey, an Obama ally who answered questions about the proposals in a conference call with reporters. "A lot of the price of oil, I think, people put at the doorstep of speculators bidding up and holding supplies off the market."

Corzine said Obama's plan aims to close the so-called Enron loophole, which exempts some energy speculators who trade electronically from US regulation. It takes its name from the now-collapsed energy firm that benefited from the law.

"My plan fully closes the Enron loophole and restores commonsense regulation as part of my broader plan to ease the burden for struggling families today while investing in a better future," Obama said in a statement.

Obama would require US energy futures to trade on regulated exchanges. The campaign also said he backed legislation that would direct the Commodity Futures Trading Commission, the top US futures market regulator, to investigate proposals such as increasing margin requirements in the market.

In addition, the Illinois senator wants to see more transparency and oversight of institutional investors in commodities markets.

The proposal is part of a broader plan by Obama that seeks to cut US oil consumption by 35 percent by 2030.

Oil hit a peak of nearly $140 a barrel last week. It has doubled over the past year, adding to woes, such as a housing crisis, that are already taking a toll on the faltering US economy.

Oil prices have soared as big funds have poured money into commodities, seeking a hedge against inflation and a weak dollar. The hot money has helped extend a six-year rally in oil, as supplies have not kept pace with surging demand in emerging economies such as China's.

The Obama campaign has accused McCain's campaign cochairman, former senator Phil Gramm of Texas, of creating the energy-trading loophole at the "behest of Enron."

The loophole is "one example of the special interest politics that put the interests of Big Oil and speculators ahead of the interests of working people," Obama's campaign said in a statement.

But the McCain campaign rejected the effort to link the Arizona senator to that law and said he had broken ranks with many Republicans to try to close the loophole. "John McCain has been part of an effort to close the Enron loophole," said McCain's top economic adviser, Douglas Holtz- Eakin.

"The truth is Barack Obama is following John McCain's lead to close a Wall Street loophole that was signed into law by President Bill Clinton," said McCain spokesman Tucker Bounds.

Gramm has denied inserting a provision into a 2000 bill that exempted some energy traders from federal oversight. He wrote to Senator Byron Dorgan, Democrat of North Dakota, on June 13, saying he had "nothing to do with the writing of the provision."

Since Obama became the presumptive Democratic presidential nominee earlier this month, he has focused his campaign message heavily on the economy while McCain, a Vietnam War veteran and former prisoner of war, has emphasized foreign policy.

Many US lawmakers have been discussing ways to limit speculation in crude oil futures, including regulation of overseas trading in a benchmark US contract for crude oil.

The Commodity Futures Trading Commission has promised to boost surveillance of energy trading by tracking index funds and getting more information on oil contracts based on American crude that are traded in the United Kingdom.

But Senator Maria Cantwell, a Washington Democrat, has called the regulator a "toothless tiger" and said Congress must act if the commission fails to pursue the matter aggressively enough.

Obama also said he would press the Federal Trade Commission and the Department of Justice to investigate possible market manipulation.

Obama's announcement came as major oil producers, consumer nations, and leading oil company executives gathered for an emergency meeting in Jeddah, Saudi Arabia, on ways to tame prices. Host Saudi Arabia vowed to pump yet more oil, but said that alone would not be enough to calm the market.

McCain was not campaigning yesterday. He attended services at a Baptist church in Phoenix.

The senator from Arizona plans appearances today in California, including a town-hall meeting in Fresno and fund-raisers there and in Riverside.

McCain's presence at North Phoenix Baptist Church yesterday was unannounced, and many of the hundreds of members appeared not to notice as he sat alone during the 90-minute service. His wife, Cindy, was out of town.

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