Senate Dems aim to stop oil speculators

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Sen. Byron Dorgan has called for curbs on oil speculation.
John Shinkle

Record energy prices mean congressional Democrats have the oil and gas industry in the cross hairs. In turn, OPEC leaders are rejecting demands for upping oil output and others are pointing fingers at speculators for driving U.S. energy prices sky-high.

Senate Democrats agree, and the energy bill they brought to the floor Tuesday included a provision to limit the impact of so-called excessive speculation. The legislation would require the U.S. Commodities Futures Trading Commission to substantially increase the margin requirement — the percentage the trader must put down, buying the rest on credit — on crude oil future trades. That would make it more expensive to trade in those futures.

The bill also would tax windfall profits of the largest oil companies and allow the U.S. attorney general to bring anti-trust actions against OPEC.

“There is an orgy of speculation in the energy futures market, which is driving up the cost of oil and the price of gasoline,” Sen. Byron Dorgan (D-N.D.) told reporters on Capitol Hill on Tuesday. “While these speculators are making record profits, our economy suffers and American families struggle to pay rising energy costs. It is time to stand up for the American people and put a stop to this rampant speculation.”

The financial services lobby is crying foul.

It says the line of reasoning behind the legislation is flawed. Among their arguments: Increased price volatility has led to more trading — not speculative traders driving up prices, as critics contend.

Moreover, history has shown that government restrictions on commodity futures produce more volatility, not less, the industry says.

There wasn’t much time to ramp up a full-scale lobbying effort against the speculator provision. And Senate Democrats failed to clear the 60-vote filibuster hurdle to formally take up the legislation. But given the high level of voter angst produced by painful trips to the gas pump, lobbyists believe there’s a good chance they could see pieces of the energy legislation again.

Big business fears a bigger big labor

The U.S. Chamber of Commerce is looking toward the future — and seeing its worst nightmare.

The business lobbying behemoth fears that the renewed political influence of labor unions will result in massively higher regulatory and litigation costs for companies.

“What’s going on on Capitol Hill is nothing short of a rapid rewrite of our nation’s labor laws,” said Randy Johnson, the Chamber’s vice president of labor, immigration and employee benefits.

The effects of the union efforts, say Chamber lobbyists, would be exacerbated if Democrats win either the White House or a stronger majority in Congress.

“We see a labor movement that is bolder, more aggressive and, frankly, more efficient than in decades,” said the Chamber’s general counsel, Steven J. Law. “This is the critical year, even though the impact won’t be seen for a while.”

Union members make up just 7.5 percent of private-sector employees, but the Chamber says the money it is pouring into the political system is having a huge impact.

Last year, organized labor spent almost $45 million on lobbying efforts, an increase from $32.3 million in 2006, according to the Center for Responsive Politics.

Readers' Comments (21)

“There is an orgy of speculation in the energy futures market, which is driving up the cost of oil and the price of gasoline,” Sen. Byron Dorgan (D-N.D.) told reporters on Capitol Hill on Tuesday. “While these speculators are making record profits, our economy suffers and American families struggle to pay rising energy costs. It is time to stand up for the American people and put a stop to this rampant speculation.”

The financial services lobby is crying foul.

It says the line of reasoning behind the legislation is flawed. Among their arguments: Increased price volatility has led to more trading — not speculative traders driving up prices, as critics contend.

Moreover, history has shown that government restrictions on commodity futures produce more volatility, not less, the industry says.

Sen. Dorgan is a good man, he showed up and intently listened to an expert panel on this very topic last week to the Senate Commerce Committee. Too bad the rest of the Committee were too busy to listen and only a handful of the committee showed up to hear this important testimony.

Of course the financial services lobby would cry foul, the mechanisms for them to play in commodities without taking delivery of the commodity is enriching them daily. It has muddied the supply/demand markets making them totally opaque, it has put at risk small business suppliers of energy. The trading rules that were suspended was in place for 60 years prior, it maintained the integrity of suppy/demand markets and protected them from the very type of speculation currently taking place. It protected consumers, producers and suppliers. All three are suffering now.

The testimony was clear, the most modest estimate of speculatory 'froth' in the energy markets was 25%, most agreed it is more like 40-60%. When these futures contracts are bid upon, ramped up on speculation, it challenges the real dealers of these markets to do business.

If the trading rules which were suspended in 1999 were restored the ppb/oil would go DOWN in the immediate. Make no mistake, other commodities also are negatively affected by the very same bozos that traded mortgage securities to each other and nearly crashed our entire economy.

I urge Mr. Dorgan and the other members of the Senate Commerce Committe to take the simple steps that do not require further legislation Mr. Greenberger outlined in his testimony which would restore basic and minimal trading rules in futures and ALL commodities.

Those of us living in the Northern corridor of states do not have the luxury of time for the markets to work themselves out or for heating oil futures to be proven false elsewhere. We cannot buy our fuel for winter and if the market continues on this same course, only the uber wealthy will be able to heat their homes this winter.

RESTORE the trading rules in commodities PLEASE. Restore the oversight teeth to the FTC and CFTC!!

Mr. Dorgan, how long will these traders and financial titans be allowed to hold Main Street hostage to their games of high finance? Haven't we suffered enough, haven't they made enough money yet?? If my taxdollars are being used to bail their businesses out by taking on their toxic products, isn't it only fair that they be disallowed to continue making megabucks off the backs of those very same taxpayers?? I don't think this is too much to ask.

Beyond the expert panel that testified before the Senate, others have shown how and why speculation affects gasoline and oil prices:

"These investors provide capital, but they consume market liquidity because their positions reduce the number of contracts available for trading. This is demand for financial contacts, not the physical product. Futures pricing is the benchmark for physical pricing. This demand creates an artificial shortage in the instruments essential for the efficient operation of the futures markets. Their activity has zero benefit for the mechanism of futures markets.

The commodity bubble will likely burst when the CFTC (Commodity Futures trading Commission) closes the "swaps loophole” – which grants the banks an exemption from speculative position limits when banks hedge over the counter swap transactions."

Worriedwomen, I'm glad that someone else looks at this website and reads the articles that really matter instead of the crap on the opening page that wont change any of the problems in this country that plaque us all. Everyone else are so busy reading and arguing about the partisan BS, they dont even try to learn the truth about these issue. Thank you for your post. Quick question, how do you feel about the oil tax bill that failed yesterday?

The tax bill that failed yesterday was political. What is really going on behind the scenes is a war of sorts between those who have effectively cornered the commodities markets and market regulators here in the US and Overseas, particularly in the U.K.

If trading rules are restored unilaterally, then the threat is hoards of traders going to London or Dubai to trade in commodities rather than that of the US market. Because of electronic trading, traders can trade a foreign exchange while sitting in their offices in the USA.

An article in the Financial Times outlines the tug of war and game of chicken going on now between foreign exchanges and the USA.

These Idiot Democrat Congressmen and Senators better do something about this supply problem RIGHT NOW. Conservatives are not stupid, and many Liberals have awaken. The STUPID Sham about blaming the Oil Companies for the High Price of Gas is OVER. This is a SUPPLY PROBLEM. This problem has been caused by decades of Stupidity. These Idiot Congressmen better do something about lifting these ridiculous environmental policies, and start drilling for OIL, or they are going to be literally thrown out on the street by an angry public who isn't going to put up with these incompetents any more. You *******es who are blocking the drilling will be found out--and you will get thrown out on the street. Lets just see what happens when gas prices start approaching $6.00 and the "poor" people who you stupid Democrats say you are "so" interested in can't even get in their damn cars and drive to work. Socialism and Communism will not be forced on the American public.

The headline numbers are the crude oil storage capacity has indeed fallen as I expected. Refiners in the USA are running at ~85% capacity.

The problem: No one wants to buy oil at these prices or store it. The fear is the bubble in the market will bust, then they are caught holding the bag and losing billions.

The people who actually produce and supply are effecitvely priced out of the market, not allowing them to build the reserves they normally build this time of year when supply is high and cost is low in the normal supply/demand market now made opaque by over-speculation.

Indeed the demand is high, there is a supply problem only it isn't from the sources most people believe and why OPEC is loathe to pump more oil as the buyers simply aren't there. The people buying the future trades never take delivery of the product itself. THAT is the problem. Its a prostitution of normal supply/demand market forces.

So whats the big deal? It means that our ability to provide products through the year will be limited. It means that the inventories of oil that take months to acquire for the winter months are lagging. It may well mean short supply not because the oil isn't there, but because the price has been over inflated and supplies dewindled as pricing isn't reflective of true supply/demand in US markets or other foreign markets.

This inflation in return produces inflation everywhere else.

To be sure, oil and gas are not the only commodities suffering under the deregulation of the markets going back to 1999. Corn, grains, metals and currencies are all affected by those looking to turn a fast buck through electronic trades.

One can only hope that those who stand to benefit from restoration of margins and trades in the electronic markets will come to their senses, this means the exchanges overseas recognizing the need for re-regulation, restoration of trade structure. The trading regulation in place before 1999 protected suppliers, producers and consumers; they would be the beneficiaries of putting margins on speculative manipulation of commodity futures be it in energy, grains, metals or any of the commodities that people need in their everyday lives, worldwide, not just here in the USA.

One of you Stupid Democrat Liberal Idiots tell me how taxing the Oil Companies is going to reduce the Price of Oil!! Huh? How is this Idiocy going to reduce the price of oil? You incompentent fools! Idiots! The American people aren't as Stupid as you think. All of these idiots in Washington need to be thrown out on their asses.

The windfall profit tax is stupid and is simply political pandering by the Democrats. But the provision regarding speculation is good legislation. I would like to see this bill reintroduced without the tax on oil companies that will just get passed on to consumers and drive up the price of gasoline even further.

What I saw yesterday on the senate floor was UGLY. The same old finger-pointing and blame. And while they argued their political stances, the fourth consecutive report that oil reserves are DOWN in the US came out.

So, they will spend their time bickering and posturing, critical supplies that take months to build in the US for the winter months aren't being supplied. If this continues it will mean a real short supply not because the oil wasnt there, but because those who are the physical suppliers were squeezed out of the market.

While we all argue about our future energy needs and development of that; this winter will bring critical shortages if this continues and your neighbors to the north won't be able to heat their homes. The first child that dies of hypothermia will bring headlines. The reason for it avoidable and once again our short sighted government impotent to put a stop to it. This is beyond politics but those who forget that critical infrastructure is in the best interest of all continue to politicize it making it impossible to do anything in the immediate.

The reason: The REAL suppliers can't buy, they can't afford to as they are the ones who store it. They don't have the funds to do it. The manicured hands behind 7 large computer screens are busy playing in the futures market and will never, ever take delivery of the product itself. They have prostituted the supply/demand markets so it doesn't even remotely resemble true supply/demand.

So where's the oil? Its not here in the USA, its not in Japan, its not in India. Where is it? I know but I won't say as its risky.

Closing of the London-Dubai loophole which allows speculators into the futures markets would likely produce a MINIMUM immediate 25% drop in gasoline prices. Others say its more like 40-60%. This would occur worldwide, not just in the USA. In turn this would also serve to put a large speed-brake on inflation otherwise. Our friends overseas who run exchanges that deal in futures contracts do not have the resources to oversee over-speculation without the reconstitution of minimal trading rules. It is in the interest of their citizens as well as the citizens of the USA to do so.

One of you Stupid Democrat Liberal Idiots tell me how taxing the Oil Companies is going to reduce the Price of Oil!!

To preface, this is not coming from a "Stupid Democrat Liberal". It won't reduce the price of oil, but consider this, a windfall profits tax could be used to fund S. Amdt. #149- $2.8 billion to increase veteran's medical care, S. Amdt #1852- $10 million for "readjustment counseling services" for returning veterans from Iraq and Afghanistan. S. Amdt. # 2735 to fund repairs for the horrific conditions in VA hospitals country wide, S. Amdt."s # 344 and S. Amdt. # 2634 for the additional counseling and additional medical funding for returning Iraq veterans suffering from post-traumatic stress disorder (PTSD) and substance abuse disorder. Then let's throw in added funding for returning veterans to adjust the index for the inflation rate and and the increase in the number of veterans and their dependants. Maybe Senator John McCain could step up to the microphone in one of his proposed town hall meetings and make such a proposal.

One of you Stupid Democrat Liberal Idiots tell me how taxing the Oil Companies is going to reduce the Price of Oil!!

To preface, this is not coming from a "Stupid Democrat Liberal". It won't reduce the price of oil, but consider this, a windfall profits tax could be used to fund S. Amdt. #149- $2.8 billion to increase veteran's medical care, S. Amdt #1852- $10 million for "readjustment counseling services" for returning veterans from Iraq and Afghanistan. S. Amdt. # 2735 to fund repairs for the horrific conditions in VA hospitals country wide, S. Amdt."s # 344 and S. Amdt. # 2634 for the additional counseling and additional medical funding for returning Iraq veterans suffering from post-traumatic stress disorder (PTSD) and substance abuse disorder. Then let's throw in added funding for returning veterans to adjust the index for the inflation rate and and the increase in the number of veterans and their dependants. Maybe Senator John McCain could step up to the microphone in one of his proposed town hall meetings and make such a proposal.

Carrier 9 - The whole premise of the "Windfall Tax" is a big show by the Democrats to punish the oil companies for making a profit. You are right though, it won't reduce the price of gas, it will increase it. Anyone dumb enough to think they wouldn't pass that cost on to the consumer is smoking their breakfast.

Being a retired service member, I appreciate your efforts regarding the vets, however, I say we should quit funding PBS, the Endowment for the Arts, stop the earmarks and stop the funding of foreign governments to pay for those things. Most of the countries we're propping up don't like us anyway. Why keep throwing good money after bad?

Ladies and Gentlemen, It does not matter who trades, who points fingers, who is making billions, or who is deliberately doing things to keep the price of oil sky high.

What does matter very much is that American consumers have to have fuel for homes, for the vehicles that take them to their jobs, so they have money to put into the economy. The bottom line is people are paying the same for a gallon of milk that they are paying for a gallon of gas. And the worst part is, it probably takes that gallon of gas for some people to even get to a store to buy that milk. What in the name of Heaven are we suppose to do? The sad part is, those who are getting rich off this OIL don't give a flip about the people who have to go to work or how they get there or how much their milk costs or why it costs so much. GREED!!!!!!! That is why the oil is so high. If it were not Greed, then why not open our reserves and help our people out here. There is no logical reason for our gasoline and heating oil to cost as much as it does. There is NO, I repeat NO shortage of oil. There is however an extreme case of trying to make the American people believe that there is a shortage. How can there be a shortage when there is 77,000 barrells of oil going into the reserves every single day. I dare say there is enough oil under this country to run this country at it's current rate of consumption for another 200 years. Why won't they open the reserves, and refine our own oil. We do not need to buy OIL from any other country. So WHY is that happening? Greed. Why does America not get the off shore drilling and deep water drilling online, if we are short? Somebody likes things just the way they are. Now blame that on Bush, or the Republicans, or the Democrats, or the Big Oil Companies. That does not matter. Point fingers won't fix this, and blaming won't fix this. Just expose who or what is at the root of this insane price increase and FIX IT. Whatever that takes.

The problem: No one wants to buy oil at these prices or store it. The fear is the bubble in the market will bust, then they are caught holding the bag and losing billions

Good enough for them! I wish I could understand what makes people so insensative to what is going on in the real world with real people who are fighting to just survive this insanity while somebody is getting filthy rich. It is a sin to make your fortune off someone elses hardship. It would not matter if OIL was flowing as free as water around here. The same people who are gaining from all this right now, would find a way to keep those gas prices at $4.00 a gallon, just because they can. The gas should be selling for $2.00 a gallon. At least people could afford to drive to work and maybe not dip into savings to meet their fuel budget for the month. People might just go on vacations again or feel a little more free to spend for groceries and clothes if they did not have to work overtime just to pay for gasoline. Would that not have a huge effect on the economy in turn? Somebody help me understand why this would not work.

The windfall profit tax is stupid and is simply political pandering by the Democrats

a realistic assessment... the 'windfall' $$ are suppose to be used for alternative fuel investigation and creation... Now , the question is, who are they gonna give that money to ( if it happens ) to do this?

But you are right - If Congress believes this is the answer, we're in bigger do-do then then we think. I am still waiting for some Vision and Planning out of this group - been waiting a while... gonna wait some-more looks like.

Horsepuckie.... look at the data. Demand for Oil has increased ~ 44% to 50% in the last 16 years, yet furtures contracts have increased 600% in the same period creating synthetic-demand for the product. One week ago Futures contracts bid up oil $11.00 in one day.... does that sound like 'natual' market demand?

Good enough for them! I wish I could understand what makes people so insensative to what is going on in the real world with real people

The problem debcan911 is these are the REAL SUPPLIERS who are small businesses. They buy and store during the summer months. They don't have huge fleets or an investment bank hedge fund branded on their trucks. If these businesses go out of business it means that there will be no one to deliver the fuel to homes in the north this winter.

These small businesses aren't the future traders, speculators or big oil companies. Restoration of minimal trading regulations would produce an immediate (by the most modest of estimates) 25% decrease in the $$/ppb. Consensus number among the experts who testified before the Senate Commerce Committee was more like 40-60% DROP ppb/oil.

If these regulations were restored (known as the London/Dubai loophole) it would put restrictions on trading of futures by those who never take delivery on the product.

Thus far, London has refused to place limits on future trading contracts. The speculation is done electronicly, anyone with a PC can do it and thats why these markets need to restore the former trading regulations that were suspended in 1999.