Sen. Ted Stevens (R-Ak.) explains in a June 18 floor speech why he believes energy speculators should be regulated, and why he co-sponsored, with Sen. Dianne Feinstein (D-Calif.), a bill which aims to do just that:
"Most foreign producers believe Americans will pay any price for oil, and Congress validates this each day we fail to implement a comprehensive energy strategy. Americans are being taken advantage of not only by [the Organization of Petroleum Exporting Countries] but by speculators right here in our own country who are exempt from regulation by the Commodity Futures Trading Commission. Historically, this has not been a bad problem. Only recently has speculation reached these unsustainable levels.
"Some speculation when oil consumers use oil futures is bona fide. For instance, an airline might buy fuel at an advanced price for delivery in the future to make certain that it has a supply in the future. That is legitimate. There is no problem with brokers facilitating even this type of purchase.
"But Congress must recognize that speculators who are not consumers of oil have taken control of our market. Ultimately, the price Americans must pay for oil and other fuels skyrockets because of their speculation. Even major institutional investors have taken up oil futures markets as a major asset class in their financial portfolios. In the last five years, investments in commodity index funds have jumped from $13 billion to $260 billion due in large part to oil futures. Let me repeat that: Investments in the commodity index funds jumped from $13 billion to $260 billion due in large part to oil futures.
"Excessive speculation in oil futures is causing our economy to continue its decline. Congress must mandate the CFTC to stringently regulate these exchanges . . .
"Our oil crisis has combined with our economic instability and excessive oil speculation to become a vicious cycle. As energy prices continue to cripple our economy, inflation rises and the dollar weakens. One of the few places that investors see a safe bet is in the energy market. They know that worldwide oil demand is increasing and will continue to increase, and so they bid higher and higher for speculative purposes on the delivery of that oil to our own country.
"Three weeks ago, I stated on the floor that the [International Energy Agency] predicted world oil demand to increase from 85 million bbl a day to 116 million b/d. If that is the future of oil, of course the investors want to increase their position in oil futures. Who wouldn't want to do that, particularly when there is no control over them at all on how much they can raise the price just by trading paper that represents future delivery of oil?
"I believe that immediately, the CFTC needs to conduct a review to examine where unregulated trading in oil futures has adversely affected the market . . . and to determine what regulations need to be adjusted. I would also like to have full disclosure from any entity or person taking part in the oil speculation game so that the American people can see who is buying and selling their energy but never even hoping to accept delivery. They are just buying pieces of paper to represent the future delivery of oil and they are speculating and raising the price to the entity that needs the oil in the future.
"There should be a limit on the extent to which investors in petroleum futures can increase their positions in this important commodity market. It should be a crime when spectators knowingly manipulate oil prices and drive up the price of fuel at the expense of the American family. Such actions undermine our country's energy stability and our energy security. American consumers are at the mercy of foreign oil sellers and domestic oil buyers already, and they should not be forced to pay so much more because of speculation.
"Last year, the senator from California, Dianne Feinstein, and I each crossed party lines, to a certain extent, to get together to pass a change in the CAFE standards. That was the first Federal increase in vehicle fuel efficiency in three decades. Sen. Feinstein has been a champion of conservation, and I applaud her.
"Now we are working together again, on S. 3131. Under the terms of this bill, the CFTC will be required to identify and crack down on the oil commodity futures markets that have spun out of control. This may involve the New York Mercantile Exchange, the Intercontinental Exchange and even foreign markets, if necessary, to address this serious problem. Our bill probably needs to be improved to make it even more certain that speculators in oil futures will be charged with a serious crime, and they should have serious penalties.
"The time is now to act against speculators. I hope the Senate will lead in this and try to crack down on speculators. I predict that if we do, we can break this bubble. If we can reduce the price by at least 30 percent by prosecuting the speculators, I think we should do it, and we should do it before we go home next week."
Contact Nick Snow at [email protected]
