Citing the harmful impacts record high crude oil prices are having on consumers, US Rep. Bart Stupak (D-Mich.) introduced a bill to close regulatory loopholes which he said have allowed commodity speculators to push oil prices upward and profit from the increase.
"For the past three years, I have been looking into the excessive speculation occurring on the energy markets. I have done more than just scratch the surface; I've really delved deep into this issue to understand the extent to which market speculation is inflating the price of crude oil," he told reporters before heading to the House floor to introduce the bill.
Stupak, who chairs the Energy and Commerce Committee's Oversight and Investigations Subcommittee, said that he has more than 50 co-sponsors, including several Republicans, for the legislation which would place all energy commodities under the Commodity Futures Trading Commission's oversight. This effectively would end exemptions allowed under the 2000 Commodity Futures Modernization Act.
It also would stipulate that if an energy transaction provides for a US delivery point or is traded on a computer terminal located in the United States, it would be subject to the same rules which currently apply to commodities trading on the New York Mercantile Exchange, including large trader reporting, record-keeping and prohibitions against fraud and market manipulation. This would apply to designated contract markets, energy trading facilities in the US, bilateral trades and trades transacted on a foreign board of trade, Stupak said.
The bill also would amend sections of the Commodity Exchange Act by extending federal regulatory authority to swaps involving energy transactions and to energy transactions on foreign boards of trade. It also would require the CFTC to establish aggregate position limits on energy contracts for a trader over all markets.
Larger initiative possible
"We're not saying end speculation. We're saying end excessive speculation," Stupak said, adding that he has been in touch with House Speaker Nancy Pelosi (D-Calif.) and that his bill, which he said is the broadest introduced so far, may become part of a House Democratic initiative following the Independence Day recess which could include other bills dealing with oil product price gouging and oil and gas producers not developing their federal leases.
He was joined at the briefing by two of the bill's Democratic co-sponsors, Jay Inslee (Wash.) and Peter Welch (Vt.), who said that the legislation's enactment would be the best immediate step Congress could take to cool off overheated energy markets. "The day this bill passes, it will signal the markets that excessive speculation won't be tolerated. It won't be the only thing we can do, but right now it's the best thing," Inslee said.
Welch said that oil companies have consumers "coming and going" by not only refusing to drill leases but also by speculating in commodities markets. "This bill asks if Congress will squeeze speculators or let speculators continue to squeeze us," he said.
Stupak and Inslee both said that recently soaring crude oil prices reminded them of dramatic increases in Western US wholesale electricity prices in 2001 which were later traced to manipulation by traders at Enron Corp. "I've seen this bad movie before. It's the Enron movie, which hit the West Coast power markets like a bomb because the federal government was asleep at the switch. It has happened again with oil prices," Inslee said.
'Numbers back this up'
Stupak said that while Treasury Secretary Henry M. Paulson and the CFTC won't acknowledge that excessive speculation is part of the high oil price problem, others from the International Monetary Fund to Saudi Arabia's oil minister have said that it is. "The numbers back this up: Between Sept. 30, 2003, and May 6, 2008, contracts held by traders jumped from 714,000 to more than 3 million, a 425% increase. Since 2003, commodity index speculation has increased 1,900% from an estimated $13 billion to $260 billion invested," the House member said.
He said that CFTC data show that in 2000, physical hedges which airlines and other businesses use to ensure a stable price for fuel in coming months and actually imply delivery, accounted for an estimated 63% of the total futures market while speculators represented about 37%. "By April 2008, physical hedgers only controlled 29% and speculators had taken over a whopping 71% of the oil futures market," Stupak said.
He said that 85% of the futures purchases tied to commodity index speculation comes through swap dealers, which are investment banks that serve as intermediaries for their pension fund and sovereign wealth fund customers. One report found that $55 billion of total worldwide commodity trading over 55 days came in as swaps, according to Stupak. "The CFTC has allowed 117 exceptions to swaps. When that many exceptions are allowed, they are not really subject to oversight. We have a CFTC that's supposed to be doing its job. I'm not certain that it is," he said. Acting CFTC Chairman Walter L. Lukken is among the witnesses scheduled to testify on June 23 at the latest hearing on oil markets and speculation by Stupak's subcommittee.
Inslee said that many energy commodity trades currently take place beyond the CFTC's oversight. "If you don't have transparency, you have excessive speculation. We learned from Enron that if you don't have transparency, you have the potential for manipulation," he said.
Asked if he intended to press his legislation if crude oil prices start to drop, Stupak said that he does. "We have not spent three years looking at this not to. Rep. Inslee and I were here for the Enron debacle and we're tired of seeing it happen. There's clearly a bubble here that's about to burst. This bill will do more to make it happen than anything the Chinese government could do," he said, referring to China's announcement the previous day that would raise domestic fuel prices by up to 18%.
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