Bill Nelson, U.S. Senator from Florida: Media Release: Congress now being asked to ban oil trading

WASHINGTON, D.C. – U.S. Sen. Bill Nelson has filed legislation to ban unregulated speculative trading of oil futures and other energy commodities as a way to curb the unchecked run-up in crude oil and gasoline prices that took off after Congress deregulated electronic trading of energy futures in late 2000.

The Florida Democrat’s measure is fashioned from testimony by University of Maryland law professor Michael Greenberger, a former government commodities regulator who recently told the Commerce Committee on which Nelson sits, the record-shattering run up began when Congress exempted trading of energy and metal from government oversight with passage of the so-called Enron loophole in December 2000.

“Clearly, unregulated speculators have bid up oil prices to unbelievable and unacceptable highs,” Nelson said today. “Congress needs to step in. We need to shine a light on all the participants and put an end to excessive speculation and any unlawful market manipulation.”

Nelson’s bill, filed late last week, comes in the wake of the Senate failing last week to muster enough votes to pass an excess-profits tax on the tens of billions of dollars being reaped by the major oil companies. The profits tax failed in the face of staunch opposition from Republicans who favor letting oil companies do more drilling in currently protected areas of the U.S.

The oil industry and its backers in Congress have argued for more drilling on federal land including in Alaska and off the coast of Florida. But Nelson and other opponents countered with the fact that the oil companies aren’t drilling on about 68 million acres of land they already have under lease. Furthermore, there isn’t enough oil in the U.S. to affect global prices.

Meantime, evidence continues to mount about the disruptive role of commodities traders in rising energy prices. More specifically, financier George Soros told the Commerce Committee on June 3 that a dramatic increase in loosely regulated commodities trading in recent years has contributed to an oil bubble and “harmful economic consequences.”

Even Saudi Arabia - which supplies about 86 million barrels a day, or roughly 11 percent of the world’s daily oil needs - has insisted for months that soaring oil prices are due in significant part to the increasing involvement of big investment funds in the commodities market.

As far back as two years ago, the Senate Permanent Subcommittee on Investigations released a report finding that lax federal oversight of oil and gas traders was due to the loophole slipped into law at the behest of the infamous Enron Corp. Legislation aimed at closing the loophole was enacted by Congress just last month as part of a broader farm bill. But some experts feel more needs to be done.

New links between soaring oil prices and the vast sums of money flowing through the commodities markets from big investment funds were uncovered earlier this year at a Senate Homeland Security Committee hearing. And on the House side, the chief executive at one major oil company testified oil would be $50 to $55 per barrel, based on the rules of supply and demand. But of the $134 a barrel current price about a third can be blamed on speculators having poured tens of billions of dollars into the unregulated energy commodity markets since passage of the Enron loophole.

Professor Greenberger testified more oversight of energy trading is needed in addition to closing the Enron-loophole in the farm bill. He suggested all energy futures trading should be done on regulated exchanges. Nelson’s legislation would amend the Commodity Exchange Act to require that energy commodities be traded only on regulated markets.

He is working closely with Sen. Carl Levin, a Michigan Democrat, who pushed passage of the measure in the farm bill to close the Enron loophole. Levin and Sen. Maria Cantwell, a Washington Democrat, have bills aimed at closing the so-called “London loophole” regarding the regulation of foreign boards of trade. Sen. Dianne Feinstein, a California Democrat, is preparing a measure to better regulate energy swaps and index funds tied to energy prices. And Sen. Joe Lieberman, the Connecticut independent, has said he is working on a proposal to ban large institutional investors from the commodity markets.

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