"To protect the U.S. economy and American consumers, there needs to be greater market oversight," Medlock said. "The tremendous increase in the market presence of speculators by fifteenfold speaks for itself."
As noted in a 2007 U.S. Government Accountability Office report, the Commodities Futures Modernization Act made it easier for financial players to obviate speculative limits and made it more difficult for the CFTC to regulate oil futures markets. Changes at the London International Petroleum Exchange, which is now the Intercontinental Commodities Exchange, regarding U.S. delivery-based contracts also created problems with monitoring and limiting speculative activity because these contracts were outside the jurisdiction of the CFTC.
While there were short windows of time before 2001 when the oil price and value of the dollar were correlated more strongly, a dramatic sustained period of high correlation emerged during the 2000s, according to the Baker Institute study. Given this new strong correlation, the authors note, the threat to the U.S. economic health and national security is that the dollar risks getting caught in a vicious cycle where continually rising oil prices feed the U.S. trade deficit, leading to increased U.S. indebtedness and thereby an even weaker dollar, which further drives oil prices higher.
The authors conclude that new policies are needed. When oil prices started rising in 2007-08 from $65 per barrel to $125, governments around the world, including the United States, engaged in building strategic stockpiles. This policy signaled to oil-markets participants and the Organization of the Petroleum Exporting Countries that governments would not use strategic petroleum stocks to ease prices under any circumstan
|Contact: David Ruth|