The trucking industry is adding its voice to a coalition demanding tighter federal regulation of trading in commodity derivatives.
Its goal is to put a choke collar on Wall Street traders the trucking industry says drive up oil and fuel prices by speculating in energy-based derivatives, putting intense cost pressure on freight transportation companies of all types just as freight demand is sputtering back.
The American Trucking Associations and other groups in the Derivatives Reform Alliance want Congress and the White House to ensure trading in energy derivatives markets is transparent, and to place limits on the value of such trades.
Higher fuel prices are choking trucking companies weakened by the recession, threatening many small businesses, Con-way executive C. Randal Mullett said at a Feb. 2 press conference on Capitol Hill organized by the Derivatives Reform Alliance.
The answer, Mullett said, is a stronger Commodity Futures Trading Commission and broader limits on trading. “Congress must act to broaden the CFTC’s authority and eliminate trading loopholes,” he said. That means placing position limits — limits on the value of contracts or options meant to ensure stable and fair markets — on all types of commodity-based derivatives. “The failure to apply position limits across all trading platforms creates a loophole that permits excessive speculation beyond the control of government regulators,” Mullett said, speaking on behalf of the ATA.
The financial institutions that control derivatives trading likely would welcome such reform as much as truckers would welcome a return to regulated pricing, but Congress may not leave them a choice.
Tighter oversight of derivatives trading is one area of financial reform legislation being debated by the Senate Finance Committee. If that committee can produce a bill that can be passed by the full Senate, it must be reconciled with House legislation passed last year before going to the White House for President Obama’s signature.
The “loopholes” Mullett points to are a product of the House bill. That bill’s critics claim it would leave 60 percent of the derivatives market without minimum requirements for capital behind trading positions. “To get our economy on track, we must bring full transparency and capital requirements to the entire derivatives market,” said Sen. Maria Cantwell, D-Wash., who spoke at the DRA event. “This will prevent a repeat of the massive losses in unregulated derivatives trading,” losses taxpayers ultimately paid for, she said, in government aid or bailouts.
Cantwell has introduced three financial reform bills in the past six months, including the Derivatives Market Manipulation Prevention Act of 2009, and legislation that would subject derivatives traders to state gambling regulations. The CFTC has been reported to be looking at tougher limits on trading but not issued new rules.
The particular concern of the DRA and other groups is the unregulated over-the-counter market in derivatives such as the mortgage-backed securities, blamed for the failure of several Wall Street firms and the widespread collapse in lending. Reform advocates want to bring the OTC market more into line with regulated exchanges.
Crude oil prices were on a steep roller coaster from the end of 2007 until late 2008, nearly doubling in one 12-month period to more than $145 per barrel before falling to less than $40 at the depth of the downturn in late 2008. Average prices on the New York Mercantile Exchange have remained generally between $70 and $80 a barrel since late August and were around $74 a barrel in the middle of last week, a price many experts consider high by historic standards because of production capacity and reserve stocks.
“While we cannot quantify the extent to which excessive speculation is responsible for the recent dramatic increases in the price of crude oil, we believe that it is a significant part of the problem,” said Mullett, vice president of government affairs at Con-way.
The ATA and its DRA partners are concerned not just by fluctuations at the pump — the national average retail diesel price rose 15 cents in December before falling back 10 cents to $2.78 a gallon by Feb. 1 — but long-term trends they say run counter to typical market behavior. The price of oil rose in 2009 despite crude oil inventories that were well above average and weak global demand for oil, gasoline and diesel, Mullett said. At about $73 a barrel, West Texas crude oil prices are more than 40 percent higher than a year ago.
“In the face of these market realities, excessive speculation is the only other variable left unaccounted for,” he said.
Contact William B. Cassidy at email@example.com.