WASHINGTON - Energy traders and oil-consuming businesses are enlisting the
public in a tug-of-war over proposals to tame fuel and other commodity prices.
At issue are measures that would curb financial speculation in commodity
futures markets amid election-year worries about runaway prices and a flagging
US economy.
The price of crude oil has doubled in the past year and quadrupled since 2003.
The US Congress has held some 40 hearings on surging prices this year and
politicians are under pressure to take action before leaving on summer recess
in August.
"We've got to do it now because consumers and the economy are
being hurt so much by the skyrocketing costs of fuel and food," said Senator
Joseph Lieberman, an independent from Connecticut.
Lieberman and others champion the Commodity Speculation Reform Act of 2008,
introduced on July 11. The latest in a series of bills addressing commodities,
this would limit certain types of investment in US and overseas commodities
futures markets.
Also on Friday, oil prices reached a new high of more than US$147 a barrel.
Analysts attributed the surge to speculation that Israel is preparing to attack
Iran and concern about supply disruptions in Nigeria and Brazil.
"There is little doubt that excessive speculation has had an effect on rising
prices," said Lieberman. "Our bill will end that and help create a more orderly
market for the industries and producers who must deal in commodities as a
matter of business."
Airlines and haulers, both major oil consumers, are pressing for curbs on
buying and selling of futures contracts by institutional investors such as
pension funds and investment banks. In a typical futures contract, an investor
agrees to buy or sell a certain amount of oil or some other commodity at a
certain price on an agreed-upon future date.
Last week, the Air Transport Association and American Trucking Association
lobbies launched a campaign an Internet site - StopOilSpeculationNow.com -
appealing directly to the public to "tell Congress to act now to lower energy
costs".
Airline chiefs also took what they called "the extraordinary step" of writing
an open letter telling customers: "Our country is facing a possible sharp
economic downturn because of skyrocketing oil and fuel prices, but by pulling
together, we can all do something to help now."
Inflation is partly a response to the imbalance between soaring demand and
static supply, they acknowledged, but "normal market forces are being
dangerously amplified by poorly regulated market speculation".
Two decades ago, speculators bought roughly one-fifth of oil futures contracts
but today they dominate two-thirds of the futures market, according to the
airline executives.
Speculators sell each other contracts so many times before the oil is delivered
and used that they drive up the price of a barrel by $30 to $60, the airline
bosses said, citing figures used by some economic analysts.
"Consumers pick up the final tab," they said. "The nation needs to pull
together to reform the oil markets and solve this growing problem."
At least one target of the proposed regulations is fighting back. The
Intercontinental Exchange (ICE), an energy exchange founded by Wall Street and
oil firms, warns on its web site, OilFuturesMarketFacts.com: "If you make laws
in a hurry, it's bound to end in tears."
Congress banned onion futures trading in the 1950s amid fears of increased
price volatility, the site says, adding: "The law of unintended consequences
then came into play."
"No longer subject to the discipline of the market, the onion's price has
fluctuated wildly - soaring 400% in late 2006 and 2007, crashing 98% this past
March, and surging 300% just a month later," visitors to the site are told.
"From oil to onions, well-regulated futures markets create stability and
predictability by allowing consumers to hedge price risks," it adds.
Lieberman had favored prohibiting institutional investors from taking positions
in the futures markets. The bill introduced last week contains no such ban
because he was persuaded the idea would not garner enough support to succeed.
However, the bill sets limits on the amount of futures contracts institutional
investors can buy or sell and would require them to file daily reports of their
market activity. These position limits and reporting requirements would be
extended to foreign and virtual exchanges that trade in US-linked futures
contracts. Those affected would include ICE, which maintains electronic trading
platforms in the US and in Britain.
If enacted, the measure would extend existing rules to unregulated investment
banks that deal as intermediaries in so-called "swaps", or deals involving
players who place opposite bets on the future price of a commodity. It would
also bolster oversight by the US Commodities Futures Trading Commission.
Earlier this month, the Paris-based International Energy Agency blamed much of
the past few years' rise in oil prices on tight refining capacity, geopolitical
worries and low spare capacity. Speculation, it said, played a marginal role.
"Money flows and speculation can have a day-to-day influence on prices, but it
is not one that can be sustained for any length of time without a market
imbalance being apparent," the agency said in a July 1 report.
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