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Gillibrand assails rampant oil speculation

By Jim Planck

CATSKILL — U.S. Rep. Kirsten Gillibrand has signed her name on as one of the sponsors of a proposed bill in the House of Representatives that seeks to curtail oil futures speculation.

A companion bill has been sponsored and introduced in the U.S. Senate.

Entitled the Prevent Unfair Manipulation of Prices, or PUMP, Act of 2008, the bill, said Gillibrand communications director Rachel McEneny, seeks “to rein in rampant oil speculation that many analysts believe has been key in the record high energy prices worldwide.”

“Over the last eight years, speculators share in the oil futures market grew from 37 percent to 71 percent,” said McEneny.

“Industry analysts say that oil speculators make up anywhere from 30 to 50 percent of the price of oil on the market,” she said, “meaning that actual oil prices should be closer to $60 to $80 than the record high of $140 a barrel.”

“This legislation,” said McEneny, “will close many loopholes in the regulatory system, and increase federal oversight to ensure that energy speculators are basing trades on market realties, rather than ‘gaming’ the system to make money at the expense of upstate New York families.”

Gillibrand is a member of the House Agriculture Committee, one of the House Committees which has jurisdiction over the Commodity Futures Trading Commission, which in turn has jurisdiction over market trading.

McEneny said that Acting CFTC Chairman Walter Lukken was scheduled to testify before that committee on Tuesday.

In his provided written testimony, Lukken noted that to help enhance trading information and transparency, the agency will analyze all existing data.

“After analyzing this data,” said Lukken, “the Commission and its staff will provide a report to Congress by Sept. 15, 2008, regarding the scope (or amount) of commodity index trading in the futures market, and recommendations for improved practices and controls, should they be required.”

Gillibrand said she anticipates the chairman’s oral testimony, in addition to his written statement.

“I look forward to hearing the testimony of the CFTC Chairman,” Gillibrand said, “as to what actions the Congress can take to aid the Commission in their efforts to rein in this rampant oil speculation.”

“Rising energy prices is one of the most critical issues facing upstate New York families, farms, and businesses,” said Gillibrand.

Of the proposed PUMP Act, Gillibrand noted, “Our energy security requires a comprehensive approach.”

“This legislation is another piece of the puzzle to solving our energy future,” she said.

“Our ability to rein in the oil speculators that have contributed to such a rapid increase in oil prices,” said Gillibrand, “must be met with significant investments in alternative energy, expanding domestic production using environmentally-sensitive technologies, and expansion of conservation methods, technologies, and products that greatly reduce our energy usage.”

The PUMP Act would change sections of the Commodity Exchange Act to address what supporting federal legislators view as shortcomings, including the inability to regulate off-exchange or over-the-counter trading.

Trading can either be done via market trading through the New York Mercantile Exchange, which is self-regulated with CFTC oversight, or through OTC trading, which is conducted off-market and has no regulation or oversight.

Up to 75 percent of the trading reportedly occurs as OTC trading, which means that three-quarters of what goes on in the market has zero accountability to Washington.

It would also address electronic trading, recordkeeping requirements, and certain transactions that are not now prohibited as fraudulent.

The PUMP Act has, in fact, been introduced twice before in previous years, but apparently did not meet with sufficient support to get out of initial committee reviews.

It is now sponsored in both the Senate and the House, however, and sponsors are hopeful the current price of gasoline at the pump will bring it to fruition this time.

The House version’s prime sponsor is Democratic Congressman Bart Stupak, of Michigan, whose spokesman said Tuesday that one of nine different bills before the House to reduce oil prices, including the PUMP Act, may be possibly voted on in July.

Stupak chairs a subcommittee for the House Energy and Commerce Committee, and on Monday released statements from trading and oil company officials regarding the speculative oil market.

Oppenheimer & Company’s managing director Fadel Gheit noted, “I cannot think of any reason that explains the run-up in crude oil price, beside excessive speculation.”

“It appears that speculation,” commented the International Monetary Fund (IMF), “has played a significant role in the run-up in oil prices, as the U.S. dollar has weakened and investors have looked for a hedge in oil futures and gold.”

“What this means,” said the IMF, “is that oil has been transformed from an energy source into a financial asset, like gold, where much of the buying and selling is driven by speculators instead of producers and consumers.”

Similarly, in a May 21 Senate hearing, Shell Oil Company president John Hofmeister told Senators that the proper range for oil prices should be “somewhere between $35 and $65 a barrel.”

The PUMP Act’s prime sponsor in the Senate is Democratic Washington Senator Maria Cantwell, who on Monday said, “Americans are desperate for Congress to work together to get to the bottom of these crippling oil prices that cannot be explained by supply and demand fundamentals.”

“We urgently need to close the loopholes that may be allowing a few rogue traders to hijack the oil futures market and force Americans to pay nearly twice as much at the pump as they should.”

Specifically, the PUMP Act is proposed to close all oil futures market loopholes, impose aggregate speculation limits, require information on index funds, and strengthen Federal Energy Regulatory Commission Authority.

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