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Guest Editorial: Futures Markets in Focus
by Dan Gilligan

Without question, independent petroleum marketers have found themselves in uncharted waters. The high fuel prices that have now been sustained since February 2008 are having devastating effects on marketers and their customers.

Certainly, I would not want to infer that marketers are the only ones suffering, but it is doubly hard for us because the general public thinks we are profiting excessively from high prices. Practically every cost of operations for marketers is going up while volumes decrease and margins remain flat. Petroleum Marketers Association of America (PMAA) leaders and staff are very focused on these price issues and are pursing every opportunity to make sure the marketplace is functioning as it should.

Following Hurricane Katrina in September 2005, many PMAA members expressed concerns that skyrocketing gasoline, diesel, and heating oil prices had disconnected from the market fundamentals of supply and demand. Because the New York Mercantile Exchange was the most prominent energy futures market, PMAA initially focused its research on NYMEX. We came to the early conclusion that hedge funds and investment banks had far too much influence on futures prices, and therefore some reform of NYMEX was needed. Actually, as it turns out, we were partially wrong in that assessment. Yes, investor speculation was a problem, but NYMEX really wasn’t.

In continuing our work on market issues in 2006, PMAA participated in a U.S. Senate hearing where we first learned that a substantial amount of energy contract trading was not subject to oversight by the Commodities Futures Trade Commission (CFTC). We learned that Congress had changed the law in 2000 to actually limit CFTC oversight of some markets such as the International Commodities Exchange (ICE).

This was a stunning revelation which resulted in a substantial commitment of PMAA lobbying resources to expand CFTC oversight of ICE and similar markets. While PMAA is a very free-market oriented association, we know that every marketplace needs boundaries establishing acceptable and ethical behavior.

Our general philosophy has been that petroleum marketers need to have confidence that the wholesale fuel prices commanded by suppliers are truly market prices, established in a fair and honest marketplace. If oil trading activities in ICE and other similar markets are exempt from CFTC oversight, how can we be sure all of the trading is honest? Seems like a simple question that begs for an answer.

The process that we began following Katrina has been a serendipitous journey where we have learned much along the way. You have probably heard the analogy on occasion of “peeling an onion” – as each layer is peeled away, all you can do is cry. We have now peeled enough of the onion where we have achieved some significant progress in the pursuit of market transparency.

Congress has held several hearings on many CFTC oversight issues. PMAA has now been invited to testify in hearings in both the House and Senate focused on increasing transparency in energy markets. PMAA Executive Committee member Sean Cota has been appointed to a new CFTC energy advisory council where many of the relevant issues will be considered. Lastly, with the approval of the 2008 Farm Bill, a portion of the 2000 statute change was repealed and an energy trading rule loophole was closed, but more work remains. Officials at the CFTC have announced their intent to work jointly with futures exchanges in Europe and elsewhere to expand transparency and oversight.

We hope members of ACE will join us in urging both the CFTC and Congress to continue efforts to make sure that the energy marketplace is one that engenders confidence rather than suspicion.


About the Author:

Dan Gilligan is President of the Petroleum Marketers Association of America, a federation of 46 state and regional trade associations representing approximately 8,000 independent petroleum marketers nationwide. 

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