WASHINGTON (Dow Jones)--U.S. Senator Maria Cantwell, D-Wash., said Tuesday she's prepared to hold up commissioner appointments to the regulator of U.S. energy futures markets if the watchdog agency doesn't act to strengthen crude oil market oversight.
Cantwell told Dow Jones Newswires that in particular she would prevent the appointment of the chairman of the Commodity Futures Trading Commission, unless the agency acted to regulate U.S. crude contracts traded on foreign boards of trade.
The IntercontinetalExchange (ICE) and the Dubai Mercantile Exchange, or DME - which offer contracts to trade West Texas crude - both have been granted exemptions by the CFTC from the same rules under which the New York Mercantile Exchange (NMX) is currently regulated, because they are considered foreign boards of trade.
Lawmakers are concerned the ICE and DME don't have the same reporting requirements and limits on speculation as Nymex, and by allowing billions of dollars in fund investment to flood long positions in the crude contracts, prices are being pushed to record levels.
In the last eight months, prices for crude futures contracts have risen more than 70% to around $130 a barrel from around $80 a barrel.
Cantwell on Tuesday chaired a Senate Commerce Committee hearing on speculation in the energy market. Experts, including billionaire investor George Soros and a former senior CFTC official, said that the lack of oversight in the markets had helped to create an oil market bubble that threatened to pull the U.S. economy into a recession.
In interviews before and after the hearing, Cantwell said she was prepared to hold up the CFTC appointments - including the appointment of acting Chairman Walter Lukken to full chairman - until the CFTC acts.
"During the Enron debacle, we used every tool we could to get the (Federal Energy Regulatory Commission) to get them to do their job...and if that's what it takes to get the CFTC to do their job, we'll use every tool we have," Cantwell said.
"I do not like the revolving door between these agencies and the industries. They are not supposed to be the fox in the hen house, they are supposed to keep the fox out of the hen house," Cantwell added. The senator is also a senior member of the Energy and Commerce Committee.
It takes only one member of the Senate to hold up a nominee's appointment.
The CFTC declined to comment.
Besides Lukken and the reappointment of Commissioner Bart Chilton - who largely has the backing Democrats because of his efforts for more stringent regulation - to another term, the Senate Agriculture Committee will consider Wednesday the nomination of Scott O'Malia to the fifth and final CFTC board seat.
Lukken, who served for five years as counsel to the Republican office of the Senate Agriculture Committee, is viewed by many Senate Democrats as having been too lax on energy market regulation.
At the hearing, Sen. Byron Dorgan, D-N.D., asked former CFTC head of trading and markets, Michael Greenberger, if Lukken was "part of the problem and not part of the solution."
Greenberger said Lukken had a "vested interest" in preventing more regulation, particularly because he was counsel to the committee that created the legislation in 2000 that loosened energy market regulation through what is now called the "Enron loophole."
O'Malia, a former executive at the Mirant Corp (MIR) energy firm, previously served as a Republican staff member on the Senate Energy and Natural Resources Committee and as a legislative assistant to current Senate Minority Leader Sen. Mitch McConnell, R-Ky.
Last week, the CFTC announced a set of new surveillance tools for crude oil markets - requesting more information from foreign boards of trade and index fund activity - and a broad-based investigation into trading and potential manipulation of the market.
Many Democratic senators said the action, while welcome, was insufficient.
Source: Ian Talley, Dow Jones Newswires; 202-862-9285; ian.talley@dowjones.com