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Jun 03
2008
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From Senator Maria Cantwell:
Today, U.S. Senator Maria Cantwell chaired a Senate Commerce Committee hearing investigating whether market manipulation is behind today’s skyrocketing oil and gas prices.
The hearing examined what is behind today’s record high oil and petroleum distillate prices; what connections exist between financial markets – particularly the futures market – and the pump price consumers pay; whether there are opportunities for bad actors to manipulate these crucial markets; and the government’s role in protecting consumers from possible illegal activity. Additionally, witnesses testified on the key factors the Federal Trade Commission (FTC) should incorporate into its upcoming rulemaking needed to fulfill its Congressionally-mandated responsibility to prevent manipulation in wholesale oil and petroleum distillate markets. .
Witnesses included: Soros Fund Management Chairman George Soros, University of Maryland Law School Professor Michael Greenberger, Inland Oil Company President Gerry Ramm, Federal Energy Regulatory Commission official Lee Ann Watson, and Consumer Federation of America representative Mark Cooper.
“With gasoline prices well over four dollars a gallon in some regions, and diesel topping five dollars, consumers no longer have the confidence that the prices they are paying at the pump are fair or even linked to underlying supply and demand forces,” said Cantwell. “We have learned from painful experience that energy markets can be manipulated when federal regulators are asleep at the wheel or market rules aren’t strong enough to protect consumers.”
According to a number of oil industry executives and market analysts, around a third of today's crude oil price is pure speculation driven by large trader banks and hedge funds, and much of it on electronic futures exchanges free from U.S. oversight. To the extent that prices do not reflect market fundamentals, the federal government has an obligation to ensure that prices are not being manipulated.
“Recently, [oil market] spot prices have risen far above the marginal cost of production and far-out, forward contracts have risen much faster than spot prices. Price charts have taken on a parabolic shape which is characteristic of bubbles in the making,” said George Soros, Chairman, Soros Fund Management
Over the years, Cantwell has worked tirelessly to increase transparency and root out manipulation in the energy markets, including securing anti-manipulation provisions in the Energy Policy Act of 2005 to provide Federal Energy Regulatory Commission (FERC) expanded authority over manipulation in the electricity and natural gas markets. Cantwell has also cosponsored legislation to help prevent price manipulation and excessive speculation in energy commodity markets that are leading to high energy prices for U.S. consumers.
"Excessive speculation on energy trading facilities is the fuel that is driving this runaway train in crude oil prices," said Gerry Ramm, Senior Executive, Inland Oil Company of Ephrata, WA. "This rise in crude oil prices in recent weeks has dragged with it every single refined petroleum product, especially heating oil...Large purchases of crude oil futures contracts by speculators have created an additional demand for oil which drives up the prices of oil for future delivery...Reliable futures markets are crucial to the entire petroleum industry."
Last December, Cantwell’s legislation banning manipulation in the oil and petroleum markets became part of the 2007 Energy Bill. Her provision empowers the FTC to levy civil penalties of up to $1 million per day. On May 1, 2008, under Congressional pressure to act, the FTC issued an Advanced Notice of Proposed Rulemaking soliciting public comment on the appropriate way to interpret and enforce the Cantwell provisions related to preventing market manipulation in the petroleum industry. Earlier this year, Cantwell also called on the President to establish a new Oil and Gas Market Fraud Task Force under the leadership of the Department of Justice to examine possible fraud and manipulation in oil and gas markets. In addition, Cantwell wrote a bipartisan letter cosigned by 21 of her colleagues to the Commodity Future Trading Commission (CFTC) on May 23, 2008 demanding the Commission require greater scrutiny of foreign trading of U.S. delivered commodities.
