Gas Prices Really Are Trump's Fault, Just Not for the Reason People Think
Energy Secretary Wright blamed traders for the oil spike, but didn't address why they're able to cause price spikes
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Energy Secretary Chris Wright on Sunday blamed the fears of “Gucci loafer”-wearing and caramel-Frappuccino-sipping oil traders for the sudden spike in oil prices.
The price of a barrel of crude topped $100 in futures trading over the weekend for the first time since 2022. (The fact that the price softened again this morning shows that supply-and-demand aren’t driving it.)
Wright has a point about those oil traders panicking. But he didn’t address why U.S. futures markets are vulnerable to panic.
The whole purpose of futures markets is to prevent spikes like this.
Paradoxically, Senate Minority Leader Chuck Schumer (D-NY) called for releasing oil from the Strategic Petroleum Reserve. But that would only bring prices down if the issue were supply. (Schumer’s office did not immediately respond to a request for comment.)
Schumer said nothing about regulating the industry Wright blamed on Sunday.
The real issue is, as Wright, a multi-millionaire, put it, “[Y]ou have a bunch of oil traders out there in their Gucci loafers with their caramel Frappuccinos who are bidding up the price.”
Actual buyers and sellers of oil are supposed to be able to set prices well in advance, locking them in and ensuring suppliers and end-users of stability and price predictability. When gamblers are allowed into those futures markets not to make contracts for shipments of the real stuff, but to bet on prices in deals known as swaps, that’s when havens for price stability become casinos driving price instability.
Wright gave no indication that he’s aware of this, even though he’s an oil man. But financial regulators have understood this for years. I first reported on the regulatory culprit, known as Footnote 563, back in 2022. But it was created years earlier, and financial regulators knew it was a problem as early as 2016.
Presidents Barack Obama, Donald Trump, and Joe Biden have failed to address it.
This morning, I asked Public Citizen Energy Program Director Tyson Slocum whether deregulation was at the root of the weekend’s spike in oil prices. He texted: “Sure sounds like it!”
In a statement, Revolving Door Project (RDP) Senior Researcher Dylan Gyauch-Lewis, who works on economic-policy issues, told me that U.S. commodity markets have been “transformed from a tool for hedging risk and stabilizing prices into yet another avenue for gambling on on our economy.”
She said that “government has permitted Wall Street to run amok in our commodity markets.”
Regarding the Footnote 563 loophole that abets rampant commodity speculation, Gyauch-Lewis said:
“There is a long history of Footnote 563 allowing financiers to submerge the markets under a tsunami of speculation. Despite pledging to close the ‘Enron loophole’ on the campaign trail, President Obama’s CFTC left it intact. Trump, Biden, and now Trump again have followed suit.” (See full statement below.)
In fact, Trump didn’t just fail to kill Footnote 563, he protected it.
Years of Neglect
When I first flagged the role of one, massive loophole in a similar spike after Russia invaded Ukraine, Democrats and watchdogs rallied around the cause of closing it. In fact, regulators under Obama had been trying to do just that but failed to seal the deal before Trump first came into office.
A few weeks after the invasion, I asked former Commodity Futures Trading Commission (CFTC) regulator Michael Greenberger about gas prices. It turned out, he had spent years warning about Loophole 563.
Basically, Wall Street used that single CFTC footnote — meant to define trader’s subject to regulation — took it literally as only applying to U.S. trading, and almost instantly set up bogus offices overseas. Actual swaps were executed overseas on paper, by traders who still commuted to Wall Street from their Greenwich homes.
Rep. Ro Khanna (D-CA) told me in June 2022, “I’m concerned about the role Wall Street speculators are playing in driving the price of oil and food futures.”
Commodity Markets Oversight Coalition Chair Jim Collura said at the time that he had briefed Rep. Paul Tonko (D-NY) about the footnote, Footnote 563. Tonko “was alarmed to say the least,” Collura told me. “He promised to bring it to the attention of the Democratic leadership.”
Congressional Democratic leadership never made it an issue. Neither did Biden.
Trump, however, actively made it worse.
By February 2017, Reuters was reporting “massive… misconduct” in the markets.
Sen. Mitch McConnell (R-KY) had gotten Trump to put his man — former industry lawyer Chris Giancarlo — atop the CFTC. In March 2017, Giancarlo announced that the American people had “entrusted the Trump Administration to turn the tide of over-regulation.”
Which he did.
Trump ordered the elimination of two regulations for every one new one. Which spelled doom for the proposed new regulation the CFTC under Obama sought to close Footnote 563.
In October 2017, a report to Trump from Treasury Secretary Steven Mnuchin and his counselor, Craig Phillips, said the CFTC should “reconsider” regulating trading between (alleged) foreign U.S. affiliates “merely on the basis that U.S.-located personnel arrange, negotiate, or execute the swap.”
By the end of 2019, the CFTC had a new chair. Trump appointee Heath Tarbert, another industry lawyer, was a former law clerk for Supreme Court Justice Clarence Thomas.
Most recently, he had been an undersecretary at the Treasury Department. For Mnuchin. It was Mnuchin who had wanted the CFTC to “reconsider” regulating bogus overseas trades just because they weren’t overseas.
Tarbert obliged. The CFTC withdrew the 2016 proposal to kill Footnote 563. His reason? “Developments.”
But also, “international comity.” That was a reference to European nations threatening a swaps trade war if the CFTC asserted international jurisdiction.
Which European companies would launch this trade war? Presumably, the U.S. ones masquerading as European ones.
Trump not only didn’t seal the loophole, and kill Footnote 563, his compliant and lax regulators carried out his mandate for deregulation by killing the rule that would have killed the footnote.
Full Statement from The Revolving Door Project:
“There is a long history of Footnote 563 allowing financiers to submerge the markets under a tsunami of speculation. Despite pledging to close the ‘Enron loophole’ on the campaign trail, President Obama’s CFTC left it intact. Trump, Biden, and now Trump again have followed suit. This is a case in point about how we routinely fail to subject the powerful finance industry to basic, common sense regulation. It’s also emblematic of how a lack of accountability causes tangible economic pain. Wall Street should not be allowed to continue to extract a pound of flesh through rent seeking every time there’s a shock to oil prices.”
- Dylan Gyauch-Lewis, senior researcher at the Revolving Door Project.
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I’m an independent journalist whose reporting is made possible by reader support. As a former executive producer at MSNBC, I helped create Up w/ Chris Hayes and previously was a senior producer on Countdown w/ Keith Olbermann. Your paid subscription helps me keep reporting.
It's valuable to know the specific mechanisms that are being used to exploit us. It gives focus to my raging fury. I've seen how addressing energy dependency has been blocked since the 70s. For every aspect of our lives to be reduced to chips in speculation for profit is disconcerting as hell to me. But we have to understand how they're doing it in order to stop the abuse!
This is very enlightening. Thanks JL