Group Calls on Congress to Curb Wild Speculation in Energy Markets
Speculators ginned up alarm over Nigerian gang violence, Pakistani unrest and shaky predictions on future OPEC capacity to drive crude oil prices to $100 a barrel without any evidence of imminent shortages, said the Foundation for Taxpayer and Consumer Rights Tuesday. With gasoline prices predicted to reach new records in 2008, the unregulated speculation in energy markets must be brought under control, said FTCR.
"Unregulated energy markets are an international Wild West of speculative gambling," said Judy Dugan, research director of FTCR and its OilWatchdog.org project. "With energy prices affecting the economy as a whole, controlling greed-driven speculation is a national security issue."
While energy traders must report on their activity in the New York Mercantile Exchange, the largest U.S. energy futures market, other unregulated "dark markets" such as the London-based Inter-Continental Exchange operate without oversight. The reason is a 2000 loophole inserted in U.S. law at the behest of Enron, exempting energy futures trading on new electronic markets from even U.S. trade-reporting requirements. Enron, then a powerful political force, argued that deregulation would make energy markets more "efficient" at setting a logical price and protecting producers and consumers from wild swings. Deregulation actually did the opposite, as Californians learned in their electricity crisis of 2000-2001. Now it is the entire world economy paying the price, said FTCR
"Without regulation, energy trading is a gambling hall, not a sober tool for setting realistic prices and protecting a commodity from price swings," said Dugan.
FTCR noted that mild energy trading oversight bills that Sen. Dianne Feinstein of California and Sen. Carl Levin of New York have submitted since 2002 still languish, blocked by energy lobbying. A version of the bill passed the Senate last month but still faces a House vote and possible White House veto. (see Feinstein press release )
"If Congress and the Bush administration don't act now to regulate energy markets, they are throwing ordinary consumers and the national economy to the speculative wolves," said Dugan. "Regulation is only a balancing of the power of unscrupulous speculators against the good of the citizenry."
FTCR noted that there is no current shortage of oil on world markets today and the increase in world demand, especially in the U.S., is actually slowing because of the global economic slump. The only reality in $100 a barrel oil is that consumers will pay the price, from $4.00 gasoline this spring, especially in the West, to unaffordable heating oil right now as temperatures plummet in the East.
During a Senate hearing on oil prices last year, the Senate subcommittee on investigations heard testimony that excessive speculation in energy markets accounts for perhaps $20 of a then-$70-per-barrel oil price. The Senate subcommittee report recommended that all U.S. traders of energy futures be required to report large trades to the U.S. Commodity Futures Trading Commission, regardless of where the trade takes place--on the NYMEX, on an over-the-counter electronic exchange, or on a foreign exchange. (see Committee press release ) This is basically what the Feinstein-Levin legislation would do.
"This shameful $100 landmark must be the trigger that pushes Congress and the president to act," said Dugan.
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