COMMODITY FUTURES TRADING COMMISSION OVERSIGHT

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					     COMMODITY FUTURES TRADING COMMISSION
                  OVERSIGHT
ISSUE BACKGROUND

The Commodity Futures Trading Commission (CFTC) is the federal government
regulator of commodity futures and futures options markets in the United States. The
following energy commodity contracts fall under CFTC jurisdiction; crude oil, gasoline,
diesel fuel, heating oil, propane, electricity and natural gas. Trading on these contracts
takes place predominately on the New York Mercantile Exchange (NYMEX) with over
$1.5 trillion traded daily. However, a growing number of trades (over one million
contracts daily) are being made on “over the counter (OTC)” or electronic exchanges
such as the International Commodity Exchange (ICE).

PMAA believes that the petroleum futures markets have now become the dominant
wholesale pricing mechanism for daily gasoline, diesel and heating oil. In recent months,
U.S. energy markets has shown that even small disruptions in production, refining
capacity or transportation networks can significantly affect prices. When investors buy
oil futures contracts as investment tools, the price of the commodity becomes more
volatile. Factor in the large volume of speculative traders entering the market and there is
even more potential for prices to be driven higher.

OTC exchanges are not subjected to the same record keeping requirements by the CFTC
as physical exchanges (such as NYMEX). Because of this lack of oversight, the
opportunity for market manipulation (leading to further price volatility) is high.

Extreme volatility in the daily trading of commodities contracts (electricity, natural gas,
gasoline, heating oil, crude oil) should provide ample impetus to act. Below (Figure 1) is
a chart of the New York Mercantile Exchange (NYMEX) showing the movements in the
price of a barrel of crude oil from March 1, 2007 to March 12, 2008. NYMEX crude oil
contracts increased dramatically over the one year period. One contract traded as low as
$62.00 (3/01/07) to a high of $110.33 (3/12/2008). Within a span of roughly 12 months,
crude oil increased by $48.33 per barrel.

The extreme volatility in the daily trading of these contracts has driven the wholesale
prices of all energy products and, therefore, the retail prices paid by consumers.
Worldwide, retail energy prices are driven by the daily buying and selling of
commodities contracts.
                                                   Figure 1

CONGRESSIONAL ACTION NEEDED

PMAA continues to urge Congress to pass the Senate Commodity Futures Trading
Commission (CFTC) reauthorization language that is in the Senate version of the 2007
Farm bill. The amendment would expand CFTC authority to regulate exempt
commercial markets (ECMs) and certain electronic over-the-counter exchanges.
Specifically, the Senate version will require the CFTC to review contracts annually so
that new significant energy contracts do not emerge outside of regulation and beyond the
radar screen of the CFTC. The House has passed its own CFTC reauthorization, but it
does not go far enough toward regulating energy futures markets.

In addition, Congress must approve adequate funding for the CFTC. As contract trading
volume has sky-rocketed in recent years, CFTC staffing levels have fallen. While the
President’s FY 2009 budget request includes increased funding for the CFTC, more will
be needed in order to ensure that the commission can hire more staff, update its
equipment and begin to more adequately oversee the diverse and rapidly growing
commodity exchanges.

PMAA STAFF CONTACT: Rob Underwood, runderwood@pmaa.org
                    Sherri Cabrera, scabrera@pmaa.org