Whitfield Helps Spearhead Examination of Energy Speculation | News | Congressman Ed Whitfield

News | Congressman Ed Whitfield | United States Representative

Whitfield Helps Spearhead Examination of Energy Speculation June 24, 2008 WASHINGTON - Continuing his efforts to lower prices at the pump for drivers in the First Congressional District, U.S. Representative Ed Whitfield (KY-01) probed leading energy economists yesterday to determine what steps could be taken to bring down skyrocketing energy costs. The Congressman helped spearhead a congressional hearing examining manipulation and speculation in the energy market, which many analysts believe is driving up the costs of petroleum and producing record-breaking prices at the pump by as much as 50 percent.

"As energy prices continue to creep higher and higher, it is important to understand the factors behind the run-up in prices and what we can do in Congress to bring them back down," Whitfield said. "Speculators in the energy market have played a role in driving up energy costs and today's hearing provided an important opportunity to discuss the extent of their role and whether the Commodity Futures Trading Commission (CFTC) can do more to monitor and regulate the situation."

Whitfield served as Ranking Member yesterday during a hearing held by the House Subcommittee on Oversight and Investigations entitled "Energy Speculation: Is Greater Regulation Necessary to Stop Price Manipulation - Part II." The hearing focused on concerns about potentially excessive speculation involving crude oil futures contracts and considered whether additional regulation is necessary to prevent market manipulation. The Committee also heard testimony from representatives of the airline and trucking industries on how energy costs are impacting their businesses and how that is affecting consumers.

Futures contracts for energy, which are legally binding agreements to buy or sell oil at a specific time and place in the future at a price agreed upon today, are traded on the New York Mercantile Exchange (NYMEX), which is regulated by the Commodity Futures Trading Commission (CFTC). There are three primary groups of participants in the futures markets - physical hedgers, traditional speculators and index speculators.

Physical hedgers are commodity users and producers who want to manage price risk. Traditional speculators buy and sell futures contracts based on supply and demand expectations and most experts agree that a certain amount of this type of speculation is necessary in the market. Index speculators, such as pension funds and sovereign wealth funds, use commodities to diversify their assets, but now appear to be engaged in speculative activity in energy markets to hedge against potential losses in the stock market.

As crude oil prices have increased by 98 percent in the past 12 months from $68 to $134 per barrel, a growing number of analysts have said that excessive speculation in the energy futures market has played a significant role in this recent surge. Between September 2003 and May 2008, the number of futures contracts have jumped from 714,422 contracts to a record 3,035,996 contracts - which represents 3 billion barrels of crude oil. Commodity index speculation in particular has increased dramatically - by 1900 percent in the past three years.

Speculators have grown to dominate holdings of crude oil futures contracts on NYMEX over the past eight years. In 2000, physical hedgers held 63% of these contracts while speculators held only 37%. In 2008, speculators hold 71% of these contracts, while physical hedgers hold only 29%.

Due to loopholes in regulations designed to limit the size of speculative investments, large energy traders can trade economically-linked contracts on largely unregulated, exempt commercial markets. By trading on unregulated markets, traders can avoid CFTC?s rules, which are in place to prevent price distortions or supply squeezes. This makes it difficult for regulators to detect excessively large positions, which could lead to price manipulation. Whitfield has sponsored legislation to determine the effects energy market speculators are having on the market in order to prevent excess speculation in currently unregulated energy markets.

Whitfield has been leading an effort in Washington to ease the burden of skyrocketing gasoline prices on Kentucky drivers by introducing legislation which would provide a tax rebate to commuters who have been forced to pay record-breaking prices at the pump and provide a long-term solution to the nation?s energy crisis. Additionally, Whitfield has sponsored legislation which would encourage the development of alternative fuels such as ethanol, coal-to liquids and nuclear power; repeal Section 526 of the 2007 Energy Bill which bars the government from purchasing abundant alternative fuels; and encourage the building of new domestic refineries.

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