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On Tuesday, President Obama unveiled a $52 million plan to limit speculation in the oil markets, increase penalties for market manipulation and allow regulators to increase the amount of money energy traders must place behind their transactions.
In a speech from the White House Rose Garden, Obama said, “Rising gas prices means a rough ride for a lot of families. We can’t afford a situation where speculators artificially manipulate markets by buying up oil, creating the perception of a shortage and driving prices higher, only to flip the oil for a quick profit.” Gas prices have surged this year and are currently near an average of $3.90 per gallon, according to AAA’s daily fuel gauge report.
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Placing aside massive liquidity injections from central banks, rising international demand and Middle East fears, Obama focused on speculators as the cause for high oil prices. He asked Congress to fund a six-fold expansion in the Commodity Futures Trading Commission’s oil trading staff, along with technology upgrades. The CFTC would also be allowed to raise penalties and set margin requirements, or how much collateral a trader must post. Obama warned, “None of these will bring as prices down overnight, but they will prevent market manipulation and help protect consumers.”
As predicted by Obama himself, oil prices did not immediately decline on the announcement to curb oil speculation. The chart above from FINVIZ shows that crude prices actually jumped to their highest level in about two weeks. After falling to as low as below $102 per barrel on Monday, oil climbed above $104 per barrel on Tuesday. In afternoon trading, shares of Chevron Corp. (NYSE:CVX) gained more than 2 percent, while Exxon Mobil Corp. (NYSE:XOM) and BP plc (NYSE:BP) increased 1.8 percent and 1.9 percent, respectively. ConocoPhillips (NYSE:COP) shares also edged .74 percent higher.
Perhaps the biggest reason for today’s increase in oil prices is the cold reality that typical Washington gridlock will prevent even the smallest measures from being agreed upon. Republicans were quick to dismiss the new plan. According to the WSJ, Senate Minority Leader Mitch McConnell (R., Ky.) said. “If I were to guess, I’d say today’s proposal by the president probably polls pretty well. But I guarantee you it won’t do a thing to lower the price of gas at the pump. It never has in the past. White House officials admit as much. Why it would it now?”
Technically speaking, oil prices appear to have short-term price support at $98-$100 per barrel. However, with central banks around the globe injecting as much as $7 trillion into the financial system in the past four years, commodity prices are bound to receive support as fiat currencies are devalued. Companies such as Delta Air Lines (NYSE:DAL) are taking matters into their own hands by going as far as buying its own refinery in order to reduce fuel expenses.
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