Our Opinion: Speculators help to pump up the pain

Miami Herald

June 18, 2008

Even if you agree with the experts that the imbalance between supply and demand is behind the soaring price of gasoline, it does not explain the steep increase that has driven the cost of a gallon upward by $1 since the beginning of the year. Sure, seasonal fluctuations, weather problems and Middle East instability all play a role. But increasing evidence suggests that U.S. motorists are being fleeced by rampant speculation in the energy market.

Betting on oil contracts

To understand how, it helps to know some history. Until 2001, crude-oil energy futures were subject to oversight by a government agency known as the Commodities Futures Trading Corporation. Then, at the behest of Enron -- remember Enron? -- the market was deregulated. Today, banks, hedge funds and others who don't have any oil and have no intention of taking actual delivery of any can buy and sell futures contracts. This represents a bet that the market will go up -- or down -- and thus influences the trend. All of this without the government oversight that existed for decades before the ''Enron loophole'' took effect.

Today, according to experts such as Michael Greenberger, a former official at the CFTC, this so-called ''dark market'' -- where the details are unknown to all but the traders themselves -- accounts for about 30 percent of all trading in crude-oil futures.

He estimates that this has driven up the price by 25 percent. And he's not alone. The research director of the Consumer Federation of America believes speculators have pumped up the price this year by $1 per gallon. Financier George Soros has told Congress that deregulation contributed to an ''oil bubble,'' and Saudi Arabia has been insisting for months that speculators are distorting world oil prices.

The basic truth about energy is worth repeating: The days of cheap oil are over. No legislative gimmick can change the laws of supply and demand. This does not mean Congress has to stand still when sensible regulation of the commodities market could ease the pain at the pump.

Risky business

A bill that attempts to close the Enron loophole was approved in May, but Mr. Greenberger and other experts believe more has to be done. Florida Sen. Bill Nelson has proposed to resume oversight by commodities markets to trading in ''energy and metals.'' This would restore the power that regulators once had before unchecked price spirals began. Congress should make it a priority.

Commodities trading is a notoriously risky business. No law should improperly punish investors willing to enter the market. But there is a difference between investing and rampant speculation, and it's time for regulators to step in and protect motorists from market manipulation.

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