July 22, 2008

In Case You Missed It, Senator Cornyn: Experts Believe Speculation Is Driving Up the Price of Oil

On the Senate floor, Senator Cornyn declared that Senator Reid’s comments this morning was the first time that he had heard that excessive speculation could be responsible for a significant portion of record-high oil prices. But economists and energy experts have been saying for months that speculation is part of the problem. Even Senator Cornyn’s allies recognize this; after all, Bush-McCain Republicans included a provision to deal with speculation in their own energy bill. Bush-McCain Republicans should stop playing politics and work with Democrats to address the high gas prices that are hurting America’s families and businesses.

Economists and energy experts believe speculation has played a major role in driving up energy prices:

Economist Mark Zandi Said Speculation Played a Role in Driving Up Oil Prices. Asked if he believed speculation played a role in driving up oil prices, Zandi responded, “Yes, I believe so, yes. The oil market has become a financial market. And it's affected by all kinds of speculators, momentum players, people just betting on prices increasing or falling, in this case, obviously, increasing.  And so they ran in quickly and drove up the price. And that clearly has played a role. I mean, you don't see a $10 move in the price of oil without some financial speculation involved, as well.”  [PBS Online Newshour, 6/6/08] 

Gerry Ramm of the Petroleum Marketers Association of America Blamed Speculation for Driving Up Oil Prices.  “Excessive speculation on energy trading facilities is the fuel that is driving this runaway train in crude oil prices today. Excessive speculation is being driven by what Michael Masters of Masters Capital Management refers to as index speculators, as compared to traditional speculators.” [Testimony of Gerry Ramm, Petroleum Marketers Association of America, before Senate Committee on Commerce, Science and Transportation, 6/3/08]

Acting Chairman of Commodity Futures Trading Commission Said the Oil Markets Are “Ripe for Those Wanting to Illegally Manipulate the Market.” Walter Lukken, Acting Chairman of the Commodity Futures Trading Commission, conceded that crude oil markets are “ripe for those wanting to illegally manipulate the markets.” [CNBC, 06/17/08]

Former Director of Commodity Futures Trading Commission’s Trade Division Michael Greenberger Said Speculation Went Beyond Supply-and-Demand Problem in Oil Market. Michael Greenberger, a former top staffer at the Commodities Futures Trading Commission, said, “There can be no doubt that there is a supply-and-demand problem at work here. But many believe, including me, that there’s a speculative premium that goes beyond what supply-and-demand factors dictate. And that’s what could be drained with aggressive United States regulation.” [McClatchy, Interview of Michael Greenberger, 6/17/08]

• Greenberger Calculated 70% of Oil Market is Driven by Speculators, Rather Than Those With Commercial Interests.  “My calculation is right now that about – at least 70 percent of the U.S. crude oil market is driven by speculators and not people with commercial interests. Most of those speculators do not have spec limits. They can buy whatever they want.” [Testimony of Michael Greenberger, Professor at University of Maryland Law School, before Senate Committee on Commerce, Science and Transportation, 6/3/08; McClatchy, 6/17/08]

Experts calculated speculation has significantly increased price of oil, cost our economy billions:

Former Director of Commodity Futures Trading Commission’s Trade Division Michael Greenberger Said Oil Speculation Adds 25-50 Percent to the Cost of Oil. When Michael Greenberger, a former top staffer at the Commodities Futures Trading Commission, was asked how much oil speculation increased costs per barrel of oil, he replied, “Well, there have been various estimates - anywhere from 25 percent to 50 percent.” [CBS News, 06/17/08]

According to Japanese Government, Speculation Added $30-$40 to Cost of Each Barrel of Oil in 2007.  “A recent paper from the Japanese Ministry of Economy Trade and Industry (METI) has echoed the conclusion of the Senate Permanent Subcommittee on Investigations. According to the METI paper, during the second half of 2007, when the physical price of Wet Texas Intermediate crude averaged $US90 a barrel, market speculation, geopolitical risk and currency factors were responsible for $US30-$US40 of the price. The average WTI ‘fundamental price,’ consistent with the underlying supply/demand situation, was around $60/barrel during the December half-year, according to the paper, citing research for the Institute of Energy Economics in Japan.” [Testimony of Mark Cooper, Director of Research for Consumer Federation of America, Senate Commerce Science and Transportation, 6/3/08]

• Unregulated Speculation from Enron Drove Energy Prices on the West Coast 300%.  “In one fell swoop, 262 pages of deregulation was added to an 11,000-page omnibus fiscal appropriation bill as Congress was leaving for its recess in December 2000, and that did not call for better regulation, it called for no regulation.  That led to the Enron West Coast electricity crisis. There's no doubt about that. The day before the documents were released evidencing that crisis, on May 15, 2002, Chairman Newsome of the CFTC made a speech that electricity crisis is a supply-demand crisis. Documents were released showing how the unregulated -- unregulated -- speculative Enron online trading engine drove prices up 300 percent in the West Coast.”  [Testimony of Michael Greenberger, Professor at University of Maryland Law School, before Senate Committee on Commerce, Science and Transportation, 6/3/08]

Consumer Advocate Mark Cooper Testified Speculation on Energy Has Cost the American Economy $500 Billion in Last Two Years. “Congressional studies, like that prepared by the Senate Permanent Subcommittee on Investigations, committee on Homeland Security and Governmental Affairs and industry analyses have become convinced that speculation is contributing to skyrocketing energy prices - by adding as much as $30 per barrel or more. Natural gas prices have been afflicted by a speculative premium of a similar order of magnitude. Since the Senate Permanent Subcommittee on Investigations first flagged this problem two years ago, the speculative bubble in the energy complex has cost the economy more than $500 billion - i.e. half a trillion dollars.” [Testimony of Mark Cooper, Director of Research for Consumer Federation of America, Senate Commerce Science and Transportation, 6/3/08]

Cooper Testified Speculation Has Contributed to Doubling of Household Energy Expenditures, Costing Consumers Additional $1,500. “Expenditures for household energy have more than doubled in the past six years and speculation has played a significant part in that run up. In the past two years, the speculative bubble has cost consumers over $1500.” [Testimony of Mark Cooper, Director of Research for Consumer Federation of America, Senate Commerce Science and Transportation, 6/3/08]

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