This transcript is automatically generated
-- President Obama -- -- tax on oil speculators to this -- test.
The president is calling on congress to crack down on oil speculators he says.
They're manipulating the market and causing high prices at the pump.
Is he right or is this tough talk just a campaign tactic.
Joining me out Fox Business network's Sandra Smith and market analyst with PSG best research Phil Flynn and Sandra.
Again I wanna make sure the audience understands you grew up in the commodities world your dad was and -- And I traded yet so you know commodities.
I mean -- -- so I would like I would like him to actually define who exactly he wants to crack down on because.
It sounds to me like two months ago after the manipulators not that you speculators in the market as speculation is obviously a very healthy function in the market.
That the very legal function of -- -- people's overall percentage they don't understand that they see no no no speculators some really bad they can't even the president looks at this as a very popular argument people don't like to pay higher prices at the pump.
Hey what's he gonna -- he's not gonna focus on his energy policy -- lack thereof he's gonna go after anybody he can.
Throw -- under the bus and make it look like they're the ones causing the problem.
And that's exactly what's happening.
Well and and Phil -- one of the things about the speculators is that you're you're one of -- Pet he has -- he's watching you and in real question is he's 52 million dollars more for.
More enforcement officers at the commodities futures trading commission do you need more do what more regulations lower the price to pump for me a pricing -- get from me at the pump.
Absolutely not in fact I think it's gonna increased the priceless in the bottom line here is the president made in an analogy that because the oil market is bigger we need more cops on the beat.
Well the truth of the matter is I don't care about more cops on the beat.
You know I I regulation -- fine the problem is is that.
When you talk about.
What he's saying is -- saying that not only does he want cops on the beat but he wants a cop to affect the outcome of the market.
That's the crux of what he's saying he wants to CFT seen.
To come into the marketplace in if -- the -- the CFTC.
Thinks prices are too high.
They wanna raise margin requirements to manipulate the price and that's not what margin requirements are for.
They're four to make sure.
The fluidity of the market to make sure people have enough money to cover their positions.
And so really -- what this is is a step towards government price control of the market place.
Well Sandra if you and I are gonna bet on the price to boil.
Three months from now becoming a look at is betting.
Okay speculators are taking on their own risk.
To get into these markets is -- a week during a lot of what I've been I'm looking them go and I think oil's going higher so I wanna buy one of one of place of the above bid.
Democrat or a higher price -- And on the on the other side that there has to be somebody who thinks the opposite somebody who wants to get out of that contract that price.
So there's always two party that's exactly right what does that do to the supply and demand of oil.
-- the market solely functions based on the fundamentals that are in the marketplace supply and demand because speculators basically look forward and they look at.
They look at geo political -- and look at what's happening in the Middle East and look at what might be a slowdown in Europe or China right and they are basically stepping into the market.
And they are predicting where the price may be at a future date in time.
They -- -- very important function because they add -- you know this might sound like target they add liquidity to the market.
Meaning they can get into the market actually help.
I see a better price for oil also lack wife Phyllis saying that we could eventually see higher prices if that president tries to you know push -- -- speculators on the market.
That is a reality right now -- So I've got that's what got this contract I'm gonna go ahead and then think that oil prices are going higher -- call yup film I want -- -- plates of a bid won't use the word -- to help place head.
-- -- -- on this oil what does that do to the supply and demand.
It doesn't affected at all in fact all you -- doing is assuming the rest for either the the oil producer or the oil consumer for a short period of time.
That's what speculators do you know people get confused.
What the word speculator means maybe the word is the problem what what you are doing is you're assuming the rest for the producer and the user of whale.
They use the futures market is an insurance contract to make sure that whenever business they're doing they can make enough profit to either continue to produce oil.
Or they're you know that they can buy a -- to continue -- -- their normal business as usual in the only way you can do that is for someone to assume the risk.
Why do we have more speculators in the oil market than ever before because the world is a more risky place and an ever Hamilton.
They had been before living go back in history in general start with you would see if you if you get the answer on this half back in the seventies -- the sixties and seventies it was it was OPEC and they.
The word those speculators.
They set the price that was it they also said supply and not demand but they -- supply so.
Then Mexico came along and said we've got a lot of loyal to were gonna go ahead and just whatever you.
Who wants to pay what premarket up the -- that was in the early eighties and down when.
Speculators came along had to basically bid the price of oil before that there wasn't any income.
I don't know about you but I don't want to go back to one group like OPEC setting the price well.
We want is a free market we want the free market functioning right now we're looking at a president that is saying that the government has a better interest has more knowledge of these markets.
Then say these speculators that -- the supply demand fundamentals in the market.
That's me is a very scary thing when you have the government start to step -- about you Tom I don't trust that.
To step into this arena when there's experts that have looked at this and said speculation as speculators do not drive the price for a higher.
The CPCs employed many economists discover this.
They have never been able to prove that but yet the government thinks that they know better to the fact that they're gonna invest 53 million billion more dollars.
With -- no sound evidence I ask you this time.
Where was so where does that the CFTC economists and academic standing behind him when he gave that speech yesterday he did that we did wellcare speech.
Still you remember there's been investigations and into this.
Just about every other year for the last dozen years everytime oil prices go up the of -- Washington folks say we need to have an investigation.
They've never found any thing so you said something at the beginning of this -- about the fact that this could lead to higher oil prices now.
Well because it will re -- transparency from the marketplace.
It will allow the people that want to buy oil into dark markets and we'll go back to those dark days we're Saudi Arabia set the prices listed.
If you remember you brought up a very good point when you you brought up the -- that 1980s when the future speculators K.
What really brought down the price of oil was the removal of government price controls that's what drove up prices in the seven -- -- In them when Ronald Reagan remove those controls this that in the speculators came on board at the same time what happened to the prices we have the biggest.
Selloff in -- -- prices probably in modern day history at that time.
And and that's the key thing here speculators do not create the price.
They reflect the fundamentals and they assumed the rest in -- take that away we increased the risk quick.
Put -- answer which will the commodities trading change and leave the United States and go to Canada or Europe.
There's a big crackdown not in the near future but I think that that's a very possible risk at this point bill.
If the CFTC starts manipulating price by using -- -- requirement it's gonna happen will go elsewhere morass of.