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Gas Prices Up Because of LEGAL Speculation; Not Manipulation, Consumer Advocate Says

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The average price for a gallon of regular unleaded gasoline stands at $3.86 -- more than 30 cents higher than just one month ago, according to AAA's fuel gauge report.

In an effort to combat rising prices, and presumably sway public opinion, President Obama last Thursday tasked the Justice Department with investigating the oil markets for evidence of fraud and manipulation that could artificially push up the price of gas, including the role of speculators.

Just a week before Obama's announcement of the new task force, Goldman Sachs released a note to clients that put a number on the impact speculators were having on the price of crude oil. The report indicated that, at the time, the speculation premium was $27 per barrel of crude oil, which hit $113.46 during early trading that same day.

That translates into 70 cents per gallon at the pump, according to Tyson Slocum, director of Public Citizen's Energy Program and a longtime consumer advocate for better regulation of the oil markets.

Slocum applauds the President's effort to "root out any cases of fraud or manipulation," but says the bigger problem right now is not the illegal activity in energy markets, but the LEGAL activity. "I'm not sure that this task force is going to uncover the kind of widespread fraud or manipulation that would be accounting for the big price increases that Americans have been facing in energy prices," he tells Aaron in the accompanying clip. "The problem is that most of that 'excessive' speculation is perfectly legal."

Slocum says two things need to be done in order to make the existing and legal laws work better for consumers:

#1 Set Position Limits

"A position limit would restrict the size of position or contract that any given trader like Goldman Sachs can own or control in the market," he says. "[Today] an individual trader can control up to 40, or 50 or 60 percent of all of the outstanding contracts…. So, if you set a limit of like 10 or 15 percent, that means you can't control more than 10 or 15 percent of the market —- it's kind of an anti-trust authority."

#2 Regulate All Trades, Make Trades Transparent

"Right now a lot of the activity driving prices is occurring in trading venues that are not firmly regulated by the federal government," says Slocum. "In Public Citizen's opinion, anytime you've got a lot of economic activity outside of the watchful eye of the government and law enforcement you are going to have an encouragement for maleficent behavior, for anti-competitive behavior and possibly for manipulation strategies."

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