SEARCH BLOG: OIL and POLITICS
On March 30, I wrote to the two U.S. senators from Michigan regarding the present situation of oil and gasoline prices, as well as related energy policies. This site contains other posts regarding U.S. energy policies. If you haven't done so, you may want to read Friday's post and follow some of the links.
While the following email from Sen. Carl Levin's office may not represent the whole picture... especially the government's part in restricting supply... the issues raised in this response need to be evaluated, especially in the area of market speculation abuses [does that remind you of the recent sub-prime and hedge fund fiascoes?]. In evaluating what should or can be done, keep in mind that some of the aspects are global and some are purely national.
This is, most likely, a standard response to this issue, but it is worth reading to understand some of the politics involved:
Dear Mr. Hall:ADDENDUM:
Thank you for contacting me with your concerns about the price of gasoline. I appreciate hearing from you on this matter.
For most Americans driving is not a matter of choice. In many areas, people cannot drive less to get to work, school, medical care, or to buy groceries. Therefore, they are forced to pay whatever the oil companies charge for gasoline. During my time in the Senate, I have worked to protect consumers, farmers, and small businesses from potentially overwhelming price hikes in oil and gas prices. When prices spiked after Hurricane Katrina, I introduced a bill to give the President the authority to temporarily freeze gasoline and petroleum product prices until supplies were restored to pre-hurricane levels. I also have supported measures to impose temporary windfall profit taxes on oil and gas companies found to be guilty of price gouging.
Even when our refineries have been operating at full capacity, I have been concerned about the manipulation of the price of oil, gasoline, diesel and other refined products, such as home heating oil and jet fuel. Over the past several years, both as Chairman and Ranking Member of the Senate Permanent Subcommittee on Investigations, I have conducted investigations into the reasons for these rising prices. In 2002, I led an investigation which found that increasing concentration in the refining industry was contributing to price spikes. In 2003, I led an investigation which found that the Department of Energy’s (DOE) purchases of oil for the Strategic Petroleum Reserve (SPR) were pushing up oil prices. Under my leadership, the Subcommittee is currently conducting an investigation into energy trading and the manipulation of energy prices.
At the same time that gas prices have been rising, often seemingly contrary to the laws of supply and demand, there has been a dramatic increase in oil and gas trading by market speculators. Energy trading can be a very complicated matter, but the basics are straightforward: energy traders buy and sell contracts for the future delivery of oil and gas on futures exchanges such as the New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE). Some of these traders are oil companies and refineries buying or selling oil and gas contracts, while others are speculators who bet on energy prices either increasing or decreasing before final delivery of these commodities.
The Commodity Futures Trading Commission (CFTC), the main federal regulator charged with policing U.S. energy commodity markets, is supposed to ensure that buyers and sellers in energy futures markets are not engaging in excessive speculation or illegally manipulating oil and gas prices. While the CFTC is able to regulate exchanges such as the NYMEX, it cannot police all U.S. energy commodities markets due to the “Enron loophole,” a provision in law that exempts electronic energy exchanges from government oversight. This provision has enabled companies like Enron to trade on electronic markets without any oversight from the CFTC. Traders on unregulated markets are able to buy massive stakes in energy commodities, possibly manipulating or distorting energy prices. In 2006, my investigation found that experts estimated market speculation could account for more than 25% of the cost of a barrel of oil. In 2007, my investigation found that large trades by a single hedge fund named Amaranth had pushed up natural gas prices during the winter of 2006-07. We need to put a “cop” back on the beat to protect American consumers from the price manipulation and excessive speculation that can occur on these unregulated electronic markets.
On September 17, 2007, I introduced the Close the Enron Loophole Act (S.2058). This legislation would help to prevent price manipulation by directing the CFTC and electronic exchanges to police energy commodity trading. This bill would help prevent excessive speculation and price manipulation by providing the CFTC with the authority needed to monitor and regulate electronic exchanges, something it already does with futures exchanges like the NYMEX. I worked to insert language from the Close the Enron Loophole Act into the Farm Bill that was passed by the Senate on December 14, 2007 (H.R.2419). Before it can be signed into law, the Farm Bill must be reconciled with similar legislation passed by the House of Representatives. If this measure were to be enacted by Congress and signed into law, it would significantly strengthen the federal government’s ability to police our energy markets.
We need to continue to develop a long-term, comprehensive plan that will conserve energy, increase our domestic energy supplies in a responsible manner, and increase the use of alternative fuels in order to enhance our nation’s energy independence. I believe we should invest in leap-ahead technologies like hybrid and hydrogen vehicles. By working with industry leaders to achieve new technological breakthroughs, we will help create jobs and spur our economy. With significant investments in research and development, public-private partnerships and incentives for manufacturers to invest in new technologies, we can make great strides in hybrid and alternative fuel vehicle technologies and dramatically reduce our dependence on gasoline. This type of comprehensive approach will reduce the cost of gas in the long run and enhance our national security by allowing for greater energy independence. As the Senate continues to debate our national energy policy, I will continue to work toward this goal.
Thank you again for writing.
Further reading: United States Senate PERMANENT SUBCOMMITTEE ON INVESTIGATIONS...THE ROLE OF MARKET SPECULATION IN RISING OIL AND GAS PRICES: A NEED TO PUT THE COP BACK ON THE BEAT