by U.S. Sen. Susan M. Collins(R-Maine)
In December, I participated in the hearing of the Senate Permanent Subcommittee on Investigations regarding speculation in energy futures markets. At the time, oil prices were then headed for $95 a barrel. We thought it an outrage. Now most Mainers would call it a relief.
Aroostook Republican photo/Barb ScottRemember when you were a teenager and could put $1.50 in the family car then “tool” back and forth through town (I believe it was called ‘dragging Main’) on a Friday or Saturday night and still not leave the gauge on ‘E’ when you handed the keys back to Dad? So far 2008 has been a year of unprecedented snowfall, flood waters, skyrocketing heating oil and gas prices. Gas surpassed the $4 mark Thursday.
With oil now above $130 a barrel, millions of Americans face dire hardship. Recently, I met with an employee of a heating-oil company from Maine. He told me that he locks in his supply price every day so he can meet delivery commitments to customers without betting his company’s survival on price changes. He’s telling customers to expect home heating oil to rise to $4.50 a gallon next winter. In the summer of 2005, the average price in Maine was $2.09 a gallon.
Mainers, like other Americans, are facing record gasoline prices and the highest rate of food-price inflation since 1990. As this Mainer said, “Something is wrong.”
Last December, I called on the Administration to stop the bizarre practice of taking oil off the market and putting it into our already enormous Strategic Petroleum Reserve during a time of record prices. Finally, the Department of Energy recently announced that its officials would stop filling the SPR until the end of the year. This occurred after the Congress overwhelmingly approved legislation forcing the Administration to halt its purchases.
I also support elimination of the so-called “Enron loophole” in our commodity-market regulatory system that exempted electronic exchanges from the trading and reporting requirements imposed on other commodity exchanges, such as those in New York and Chicago. Closing this loophole will give regulators a clearer view of who is trading, what they are doing, what effect they are having, and whether laws against market manipulation are being respected.
The issue of speculation in the future markets deserves more attention, which is why our Senate Homeland Security Committee held a hearing last week on the impact of speculation on escalating prices.
Two differing views have emerged on what is causing the soaring prices in the futures market. Federal economists suggest that some large investors tend to follow changes in the market or react to news rather than directly push commercial prices up or down. They tell us that fundamental factors of supply and demand account for the dramatic developments we’ve seen in markets for commodities.
At our recent Committee hearing, I heard from witnesses on both sides of the debate. While the hearing did not settle the debate, I found the evidence to be strong that financial speculators are disrupting the commodity markets. The massive influx of funds from institutional investors is one of the causes of sky-rocketing prices.
I believe the CFTC must also look into legal practices such as large purchases of commodity-linked financial products by institutional investors to examine whether they are disrupting essential market functions or exerting undue pressure on the price of the underlying commodities.
