WASHINGTON -- U.S. Attorney General Eric Holder sent a memo to the federal agencies involved in the president's new Oil and Gas Price Fraud Working Group on Friday, urging them to take close look at the recent plunge in oil prices. The crude oil market fell 10 percent Thursday in a record sell-off.
The sharp drop came amid concerns from several experts that excessive speculation in commodities markets was driving up gas prices for consumers. As Bart Chilton, a top regulator at the Commodities Futures Trading Commission (CFTC), has repeatedly noted, the number of speculative bets on oil and food are at record levels.
The CFTC and Justice Department have had authority to monitor fraud and manipulation in the oil markets for decades. But President Barack Obama created the new oil market fraud squad in April to provide enhanced regulatory scrutiny of potential fraud and manipulation in the oil futures and derivatives markets.
Holder's Friday memo was not concerned with the causes for the oil market decline, only that no illegal activity prevents resulting lower prices being passed onto consumers.
"As you are all aware, toward the end of this week oil prices dropped significantly," the attorney general wrote. "Of course, there are lawful market forces that lead to price fluctuations and to differences between wholesale and retail price trends in these markets. This working group was created to identify whether fraud or manipulation played any role in the wholesale and retail markets as prices increased. If wholesale prices continue to decrease, fraud or manipulation must not be allowed to prevent price decreases from being passed on to consumers at the pump."
Some economists and analysts have suggested that, while increased scrutiny may be justified given heavy commodities trading, fraud cases are unlikely to significantly affect the price of gas. That's because, as Holder noted in his memo to the working group, most speculation in oil and gas markets is perfectly legal.
Sen. Bernie Sanders (I-Vt.) wants to change that. He sent a letter to Obama last week demanding that the CFTC impose new rules to crack down on excessive oil speculation by Wall Street traders.
Last year's financial reform bill requires the CFTC to craft rules reining in excessive speculation. But, citing inadequate market data, the agency failed to meet a key deadline on those rules earlier this year.
A recent Washington Post/Pew Research Center poll found that Americans blame greed and speculation for the run-up in oil prices more than any other factor.