Feb. 19--When the big Valero plant switched over to refining mainly North Dakota crude last summer, it looked like Memphis motorists might catch a break and avoid the higher cost of imported oil.

Instead, prices have climbed.

Unleaded regular gasoline shot up 43 cents in Memphis over the last month to average $3.57 per gallon, insurer AAA' Fuel Gauge reported Tuesday, noting the price is 11 cents higher than a year ago.

Valero Energy Corp.'s southwest-side refinery -- Memphis' largest automotive fuel supplier -- now runs largely on oil extracted from below the Great Plains.

It's a source only dreamed about a generation ago, when reducing imports from troubled foreign lands became a preoccupation of American policy makers.

Burning domestic crude, however, has not enabled the 1 million motorists of metropolitan Memphis to elude the soaring price of gasoline.

But just why are prices rising? After all, the U.S. unemployment rate stands at 7.9 percent, Europe and Japan are in recession, and China and India have slowed consumption. Blame hedge funds and speculators pouring money into oil futures contracts, asserts a top U.S. commodities regulator.

While not every analyst shares his view, Commodities Futures Trading Commission member Bart Chilton figures speculators are the key reason the price of oil has climbed from $25 per barrel a decade ago to about $95 currently.

"There is plenty of reputable and reliable evidence documenting what many of us simply know: that excessive speculation can contort markets," Chilton told an audience in Jonesboro recently on the Arkansas State University campus, according to a transcript on the CFTC website.

"Today, energy costs for most families have risen more than 20 percent since 2001," Chilton said. "This hurts not only American households, but also American business -- like many of your businesses -- that rely on energy. According to the Energy Information Administration, nearly nine percent of our economy or $1.4 trillion is spent on energy annually. Imagine if that figure dropped by just 10 percent -- $140 billion freed up for investment and economic growth."

Chilton's comments sent a stir through the commodities and energy industry. Analysts pointed out U.S. oil output is set to grow this year at the fastest pace in history. But oil is priced on a world stage, and traders are looking beyond U.S. supply for signs of disruption in the oil fields located around the world.

Saudi output has fallen even as potential and some actual disruptions in Venezuela, Nigeria, North Africa and elsewhere in the Middle East have tended to elevate the price of oil on the global markets, said James Williams, energy economist at WTRG in London, Ark.

"I think in the last three months we've seen certainty about uncertainty," Williams told the Reuters news service.

Chilton takes another view. Formerly an adviser to Sen. Tom Daschle, D-S.D., and an undersecretary in the U.S. Department of Agriculture, Chilton was appointed to the CFTC by President George W. Bush. Those roles have given him a look into commodities trading.

In a world awash in cash for investment, he says money managers pour money into the oil market, betting on big profits. He shrugs off the idea advanced by analysts that this is the regular commodities market at work.

"If what they're saying is true, then we should see commercial traders (your producers, processors, merchants, etc.) dominating the market during periods when prices are changing," Chilton told the Jonesboro audience.

"Our staff has looked at trading in crude oil and has found that commercials are a part of only a tiny fraction of the trades that account for price changes. In other words, non-commercials -- speculators -- are dominating the price discovery process in crude oil," Chilton said. "The issue isn't whether speculators affect the market; the issue in many instances is that speculators have become the market."

In September, a court rejected a CFTC rule to limit speculation in commodities markets. The agency is appealing the decision and devising an overhaul of the $650 trillion derivatives market.

Still, Chilton expresses doubt that change can occur. In Jonesboro, he noted the 2010 Dodd-Frank bank reform law included limits on speculative positions, but the limits were never enacted.

"They're not in place in large part because the largest speculators on the planet are gripping position limits like Charlton Heston's gun," Chilton said. "They've tried to kill them on Capitol Hill when the bill was considered. They tried to defund them. They tried to mute them through the rulemaking process, and now they are trying to litigate them to death."

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