A U.S. senator is drafting legislation that would ban commodity index funds and ETFs on concerns the passively managed vehicles are driving oil and gasoline prices higher, according to a report.
Supply worries in the Middle East and lower refinery output are partly responsible for pushing average gas prices to $3.93 a gallon, a record for this time of year. Gas prices could top $4 a gallon as early as this week, the Associated Press reports.
Amid concerns that rising oil prices could derail the economic recovery, Senator Maria Cantwell is preparing legislation that would exclude passive investors from commodity markets, according to a Reuters report.
Commodity ETFs have been under fire in recent years following the spike in energy prices in 2008.
“You’re not banning money that goes into production, you’re not banning money that creates market liquidity,” said Michael Greenberger, a University of Maryland law professor and former official at the Commodity Futures Trading Commission, in the Reuters story.
“You’re banning gambling that has no productive value whatsoever. When that argument becomes clear, there is every chance that there will be bipartisan enthusiasm to stop the casino-like atmosphere here,” he said.
At the end of March, there was $117.6 billion in commodity exchange traded funds and notes listed in the U.S., according to data from the ETF Industry Association.
U.S. Oil Fund (NYSEArca: USO) is the largest oil ETF with $1.4 billion in assets. The fund invests in oil futures contracts.
The oil ETF is up 3% year to date, while U.S. Gasoline Fund (NYSEArca: UGA) has rallied 18.7%, according to Morningstar.
U.S. Gasoline Fund
