WASHINGTON — The Republican-led House of Representatives is poised to pass, as early as Wednesday, a sweeping spending bill that would slash funding for the regulatory agency responsible for policing against excessive speculation and price manipulation in oil markets.
House members are expected to approve an agriculture spending bill that would deeply cut the annual bill that funds the Commodity Futures Trading Commission, which regulates trading in oil, grains and other commodities.
The House bill would provide $171.9 million for the agency, a decrease of about $30 million from the $202.2 million given to the agency the prior year.
The Obama administration requested more than $300 million for the fiscal year that ends on Sept. 30, a steep increase because the CFTC gained sweeping new powers under last year's broad revamp of financial regulation_ short-handed as the Dodd-Frank Act.
Among those powers is regulating, for the first time, the complex over-the-counter market, where private parties enter into secret bets, called swaps, on movements in the price of oil and other commodities. These so-called dark markets are seven times as large as the regulated futures market, where contracts for future delivery of oil are traded. CFTC Chairman Gary Gensler says he now oversees seven times as much territory as the CFTC did before Dodd-Frank and must have a bigger budget to protect the public from market fraud and manipulation.
The CFTC has greater support in the Democratic-controlled Senate. The expected cut by House members comes against the backdrop of recent volatility in oil markets that drove the price of the benchmark West Texas Intermediate crude to above $113 a barrel in May.
Oil prices are now hovering just below $100 a barrel, even as the United States and other developing nations are seeing weak demand for oil because of sluggish economies. This price volatility happened during a period when financial investors reversed a longstanding trend and now make up to 88 percent of all oil trades, pushing end users of oil to the sidelines.
"We are planting the seeds for the next financial crisis," Rep. Stephen Lynch, D-Mass., said during debate Tuesday, arguing for restoration of full CFTC funding.
Ohio Democrat Rep. Marcy Kaptur said the legislation would give Wall Street a free hand to run up oil prices.
"It basically ... gives a green light for them to do it to us again," she said.
But Rep. Jack Kingston, R-Ga., who's shepherding the spending bill, cited a Democratic commissioner of the CFTC, Michael Dunn, as saying there's been no proof that excessive speculation has driven up oil prices.
"The discussion of the CFTC and oil speculators is a red herring. The real issue that the Democrats have failed to address is drilling for oil in order to increase the supply," Kingston said on the House floor.
Interviewed by McClatchy earlier Tuesday, CFTC Chairman Gensler expressed concern about the proposed funding cut.
"I think that it's quite clear that the agency has been given a large, new mandate," Gensler said, adding that the agency needs a 45 percent increase in staffing to meet its new responsibilities. "We don't think, we know we need those people and we know that we need them to make sure there are effective cops on the beat, to make sure that we have the people to answer questions and interpretations."
The Dodd-Frank Act gave a July 16 deadline for the CFTC to enforce a number of new rules. The agency, long understaffed, has labored to meet the deadline, but on Tuesday voted to delay a number of items until the end of 2011.
The 5-0 CFTC vote put out for two weeks of public comment a proposed delay in some rulemakings involving the swaps market. The delays are expected to be approved by the agency's Democratic majority. Gensler told reporters his agency needs the additional time to make sure new rules don't harm industry and properly protect taxpayers.
Republicans, who hold two of the five commission seats, tried but failed to pass an amendment to delay the deadlines imposed by the Dodd-Frank Act indefinitely instead of for six months.
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