Report expected to blame oil price swings on speculators

| Wednesday, July 29, 2009

For more than a year, news reports have detailed the vast power and influence that speculation investors have wielded on oil futures and prices at the pump.

A new report due out in August, however, goes even further in assessing blame for the rapid swings Americans experienced in diesel and gas prices.

The U.S. Commodities Futures Trading Commission is poised to release a report as early as next week, which is expected to suggest that price runs in 2008 and earlier were driven more by commodity traders than by supply and demand – even more so than earlier investigations have revealed.

Speculation doesn’t require traders to ever own any of the actual commodities, and investors often need to possess 5 five percent of the amount they’re trading, as opposed to 50 percent in general stock trading. Traders try to buy before price increases, and sell before prices drop to reap profits without taking possession of the commodity.

A 2008 CFTC report blamed oil price fluctuations mainly on supply and demand, something that CFTC Commissioner Bart Chilton recently told The Wall Street Journal was based on “deeply flawed data.”

Mike Joyce, OOIDA director of legislative affairs, told Land Line Now that the report is expected to show a positive correlation between rising prices and Wall Street investors betting that prices will go up.

“Essentially it’s like wagering. It’s like going to Vegas and wagering on a baseball game,” Joyce said. “They’ve got studies that are showing it’s much more closely tied to this wagering than previously thought.”

Elected officials have introduced several bills aimed at closing the “Enron loophole,” which allowed overseas trading of U.S. oil and preceded huge increases in oil speculation over the last six years.

Companion legislation called the Energy Market Manipulation Prevention Act has been introduced in both chambers of congress. U.S. Rep. Bart Stupak, D-MI, has introduced House Resolution 2869, and Sen. Bernie Sanders, I-VT, has introduced Senate Bill 1225.

Joyce said that Rep. Peter DeFazio, D-OR, who chairs the Highways and Transit Subcommittee, has floated the idea of taxing oil speculation as a way to help bridge the proposed transportation bill’s $450 billion budget gap for the Highway Trust Fund.

“It’s really intriguing to look at this as an avenue to build money for the Trust Fund,” Joyce said. “Chairman DeFazio understands the impact of this on the end user, and is trying to minimize the negative impact for the trucker, the automobile driver, etc., when it comes to fuel prices.”

In 2000, Congress approved the so-called “Enron loophole,” which allowed for energy commodity trading to be done in markets without government regulation, such as overseas trading.

– By Charlie Morasch, staff writer
charlie_morasch@landlinemag.com

 

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