WASHINGTON (Dow Jones)--The U.S. House of Representatives will begin debate Wednesday morning on legislation that would curtail speculation in the energy and agriculture markets, but may face Republican opposition as the GOP seeks to force Democrats to allow a vote on increased domestic petroleum exploration and production.
A Democratic aide said a vote on the bill could come as early as Wednesday.
The bill - which last week passed with strong bipartisan support in the Agriculture Committee - would strengthen the Commodity Futures Trading Commission, giving it more power to rein in speculation that many lawmakers believe is helping to fuel skyrocketing energy and agriculture prices.
Committee Chairman Collin Peterson, D-Minn., said the bill "would bring much-needed transparency to commodities and futures markets." It would extend CFTC oversight to previously exempt over-the-counter markets and call for a new full-time CFTC staff to improve enforcement, prevent manipulation and prosecute fraud, he said.
With oil trading north of $120 a barrel, gasoline, jet fuel and diesel prices have hit previously unseen levels, forcing many businesses and household budgets into the red. Expecting to lose an estimated $10 billion this year because of skyrocketing fuel costs, chief executives of the country's biggest airlines have resorted to begging their customers to press Congress for tougher regulation of energy markets.
While many oil analysts say that fundamental factors such as increased demand from Asia and the Middle East, falling output from non-OPEC countries and geopolitical tensions threatening supply are the primary drivers of record high oil, gasoline, jet fuel and diesel prices, others say "excessive" speculation in the markets is to blame.
Specifically, it would codify actions taken recently by the regulator, forcing position limits on the designated contract markets such as the New York Mercantile Exchange (NMX) and foreign boards of trade such as IntercontinentalExchange's (ICE) ICE Futures Europe.
It would also give the regulator discretion to impose position limits for pure speculators - those participants that aren't hedging for physical delivery of products - in the over-the-counter markets if the CFTC believes the trading is disrupting liquidity, price discovery, causing a severe market disturbance,or otherwise helping create a price that isn't based on supply and demandfundamentals.
Although the bill passed on a voice vote in the Agriculture Committee with support from ranking member Bob Goodlatte, R-Va., and other Republican representatives, House GOP leadership may try to whip party support to block the bill to highlight their message that any solution should include expanded petroleum exploration.
House Speaker Nancy Pelosi, D-Calif., has repeatedly said she wouldn't allow a vote on opening up new areas for production. By using a procedure that prevents amendments to the bill - for fear of a vote on exploration – the speaker will need to garner two-thirds of the House for the legislation to pass, a strategy that leaves the bill open to Republican blocking.
Republicans have been trying to use a swell of public support for increased petroleum production - including areas currently closed on the Outer Continental Shelf - to break Democrats' opposition to lifting a decades-old drilling moratorium.
Antonia Ferrier, spokeswoman for House Republican Whip Roy Blunt of Missouri, said GOP leadership hadn't yet seen the text of the legislation that would be offered, and so hadn't decided whether they would be whipping up opposition to the bill, but the issue would be discussed in the caucus meeting Wednesday morning.
Despite the possibility of a Republican block, an aide with senior Democratic leadership said they "are very optimistic of chances" for the bill's passage.
Even if it does pass the House, it would still face a similar Republican block in the Senate, where another version of the anti-speculation bill has stalled.
Although the House bill is more of a regulatory scalpel compared to the Senate anti-speculation bill cleaver - which would mandate position limits throughout all commodity futures markets - the financial and trading industries are concerned about the impact on the market. Groups such as the Futures Industry Association warn that the legislation could create a migration of trading to offshore markets that are less transparent and under more lax regulatory regimes.
The Employee Retirement Income Security Act Industry Committee warned the agriculture panel that the bill, if enacted, "threatens the ability of pension funds to take reasonable and prudent measures to reduce their investment risk and volatility and would jeopardize the retirement security of millions of American workers."
Source: Ian Talley, Dow Jones Newswires; 202-862-9285; ian.talley@dowjones.com