Sen. Bernie Sanders has joined the increasing call for a crackdown on speculation in the oil markets. His letter to Barack Obama, which I’ve added at the end of this post, calls on the President to inform the Commodity Futures Trading Commission that they must impose strict limits on oil speculation, which is required in the Dodd-Frank law. He also wants Obama to ask for the immediate resignation of any CFTC commissioner who won’t impose these position limits on oil trading.

The position limits were supposed to be put into effect on January 22 of this year, but CFTC delayed their rule for a year. They also weakened the limits so that one speculating Wall Street firm could control up to 25% of the oil spot market, and four of them could corner it. There are not currently the votes on the CFTC to reverse this and change the position limits. Sanders writes:

Three out of the five commissioners at the CFTC must vote to approve strong oil speculation limits before they can take effect. It is clear right now that there are only two commissioners who are willing and able to do what the law requires to significantly limit oil speculation and bring down gas prices at the pump.

There’s been at least some question among regulators whether speculation can account for the rise in oil prices. The Federal Trade Commission wrote a report yesterday saying that market forces were the major cause for the run-up. And The Atlantic’s Derek Thompson created a chart based on expert opinion showing speculation accounting for only a sliver of the run-up in prices.

But I’m going to believe Goldman Sachs over those two sources. After all, it’s their business to know. Here’s what they said this month:

Goldman Sachs rocked oil markets for a second day Tuesday by calling for a nearly $20 fall in Brent crude oil, saying speculators had pushed prices ahead of fundamentals. It was the second warning of a steep market reversal from the long-term commodity bull in as many days. On Monday, Goldman recommended clients close a trade heavily weighted toward U.S. crude futures [...]

On Tuesday, Goldman chief energy analyst David Greely said the recent run-up in prices, in which Brent rallied as much as 33 percent since the start of the year, looked overdone.

“While prices are back at levels of spring 2008, supply-demand fundamentals are significantly less tight,” Greely said in an April 12 note emailed to clients [...]

Goldman analyst Greely said that while unrest in the Middle East and North Africa remains a risk to oil markets, with Libyan exports already largely cut off, the price had been pushed too high by the large number of speculative traders currently long crude oil.

“Both inventories and spare capacity are much higher now and net speculative positions are four times as high as in June 2008,” Greely said.

There are definitely gluts in oil supply in the United States, though pipeline bottlenecks are not allowing it to get out as quickly as needed. The US Energy Information Administration says clearly that supply is higher today than it was last year, when gas cost on average over a dollar a gallon less. There’s surplus oil everywhere at a time when prices are skyrocketing. Speculation is a very good explanation for this. Market forces aren’t. As Sanders’ office told me, “When even Goldman Sachs says that excessive speculation is responsible for 20 percent of crude oil prices, you know Wall Street is jacking up the prices.” This averages out to at least 70 cents a gallon going directly to Wall Street. Others put the number for speculation at 50%.

Now, there are definitely other factors. Oil rises on global supply and demand, and emerging markets have sought more product. In addition, many wells have peaked their production around the globe.

The record profits shown by oil companies this week have been so high that they apologized for them. Firms like Exxon say they have no control over oil prices. According to Sanders, speculators do. And that means regulators can put a stop to it.

The full letter is below.

Dear Mr. President:

As you know, the skyrocketing cost of gasoline is causing severe economic pain to millions of Americans who have already suffered through the worst economic crisis since the Great Depression.

In Vermont , where it is not uncommon for people to commute 100 miles to work and back five days a week, the increased price of gas is taking a serious bite out of the paychecks of middle class families, many of whom are already working longer hours for lower wages. We have a responsibility to do everything we can to lower gas prices so that they reflect the fundamentals of supply and demand and bring needed relief to the American people at the gas pump.

Let’s be clear. There is mounting evidence that the skyrocketing price of gas and oil has nothing to do with the fundamentals of supply and demand, and has everything to do with Wall Street firms that are artificially jacking up the price of oil in the energy futures markets.

In other words, the same Wall Street speculators that caused the worst financial crisis since the 1930s through their greed, recklessness, and illegal behavior are ripping off the American people again by gambling that the price of oil and gas will continue to go up.

According to the Energy Information Administration, the supply of crude oil is higher today than it was last year when gas prices averaged $2.81 a gallon, while the demand for gasoline is lower today than it was last year. Based on supply and demand fundamentals, prices should be going down, not up. Instead, gas prices have gone up by over a dollar a gallon since last year.

According to Goldman Sachs, 20 percent of the price of crude oil is due to excessive speculation. Other experts believe that excessive speculation is driving up crude oil prices by 50 percent. This means that Americans are paying a Wall Street premium of between 70 cents and $1.63 a gallon every time they fill up their gas tanks.

This is simply unacceptable. What is particularly offensive is that this could and should have been prevented under current law.

The Wall Street Reform and Consumer Protection Act that you signed into law last summer required the Commodity Futures Trading Commission (CFTC) to impose strict position limits on the amount of oil that Wall Street speculators could trade in the energy futures market no later than January 22, 2011.

It is now April 28, 2011, and the CFTC has still not imposed speculation limits on oil trading in direct violation of both the letter and the spirit of the Wall Street reform law.

Since January 22, 2011, when these speculation limits were supposed to go into effect, until today the national average for a gallon of gas has gone up by more than 80 cents a gallon.

Instead of putting strong speculation limits in place in January of 2011 as required by law, the CFTC proposed a rule on position limits that wouldn’t go into effect until late January of next year. Adding insult to injury, these position limits are so ineffective that they would allow just one Wall Street firm to control 25% of the entire U.S. crude oil spot market or four firms to control 100% of this market without violating the regulations.

Three out of the five commissioners at the CFTC must vote to approve strong oil speculation limits before they can take effect. It is clear right now that there are only two commissioners who are willing and able to do what the law requires to significantly limit oil speculation and bring down gas prices at the pump.

I urge you to make it clear to the CFTC that they must obey the law and establish strong oil speculation limits as soon as possible. I would also urge you to ask for the immediate resignation of any CFTC commissioner who refuses to obey the law and nominate someone else who will.

We cannot allow Wall Street speculators to rip off the American people at the gas pump for one more day and the American people cannot wait another eight months to go by before any limits on Wall Street oil speculators go into effect.

Thank you for your attention to this important matter. I look forward to working with you on this issue.