[Congressional Record Volume 154, Number 82 (Monday, May 19, 2008)]
[Senate]
[Pages S4294-S4296]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                               GAS PRICES

  Ms. CANTWELL. Madam President, I rise today to talk about the out-of-
control oil prices we are seeing and what we can do about it right now. 
I see we have reached another record in gas prices with the national 
average topping $3.79 a gallon, and today is the 13th day in a row we 
have seen an increase in gas prices.
  It is time Congress be more aggressive at trying to solve this 
problem. We have taken some action in the last week, both on the 
Strategic Petroleum Reserve and on the farm bill, trying to put more 
teeth into the CFTC. But we need to do more.

[[Page S4295]]

  Democrats certainly want to police the oil and gas markets. We want 
to make sure we are doing a better job at policing these markets and 
restoring the authority the CFTC once had, and in making sure the CFTC 
does its job in preventing fraud, excessive speculation, and market 
manipulation. But many of my colleagues may not remember exactly how we 
got to this point after we substantially deregulated the energy futures 
market. While the oil futures market may seem like an issue that many 
may not understand in America, I guarantee my colleagues that oil 
futures affect the price of gasoline today. In fact, oil futures out to 
2015 are already over $100 a barrel and certainly affect the price of 
gas at the pump. But on a dark December night in 2000--in fact, it was 
December 15, the last day of the 106th Congress--an amendment was put 
on the Omnibus appropriations bill that received little attention and 
basically deregulated the energy futures market. That amendment that 
deregulated the energy futures market--the Commodity Futures 
Modernization Act--was added quietly to the 11,000-page must-pass 
Omnibus appropriations bill, right when Congress was adjourning. This 
deregulation has had a major impact on what we now lack in the 
oversight of markets.

  In fact, we had one analyst, Gretchen Morgenson, being quoted as 
saying:

       The Commodities Futures Exchange Act was an early Christmas 
     gift to a company that had worked hard to persuade Members of 
     Congress that the electronic energy exchanges and all the 
     trades made on them should be exempt from regulators' prying 
     eyes. The company was Enron.

  So while many of my colleagues may not have realized in 2000 exactly 
what was happening, it was clear Enron knew exactly what it was 
lobbying for in getting the Commodities Futures Modernization Act 
attached to the Omnibus appropriations bill. In fact, Enron spent close 
to $2 million lobbying to make sure we deregulated the energy market. I 
can't tell my colleagues--besides what has happened with the electronic 
trading of electricity--how much this has impacted the rest of our 
energy markets that some of my colleagues may not understand.
  What this CFMA bill did is it substantially deregulated the energy 
futures market. It did that because it allowed energy futures trading 
on dark, opaque markets, it substantially relaxed existing regulation 
of energy trading, and it wholly excluded volatile financial 
derivatives which are at the center of today's credit crisis--credit 
default swaps.
  At that point in time, there were many who were arguing that the CFTC 
should have had an aggressive role in regulating credit swaps, and that 
bill that was passed, again, on December 15, 2000, at 7 p.m. at night, 
on an 11,000-page omnibus bill, basically prevented any regulation 
whatsoever of credit default swaps. I think many understand now exactly 
how detrimental it has been not to have more insight into credit 
default swaps and the impact they have had on the credit crisis.
  We had good consumer protection tools in place before deregulation. I 
wish to make sure my colleagues understand that. We had good consumer 
protection tools in place prior to this deregulation. On all energy 
futures exchanges, we required records be kept for all trades. Large 
trades on all exchanges had to be reported to the CFTC, which means 
that if somebody had a large position in a particular futures or 
derivative contract, they had to report that to the CFTC. There were 
speculation and position limits required on all exchanges. The CFTC had 
to review all trading for fraud and manipulation and for excessive 
speculation. That was one of their responsibilities. Also, traders had 
licensing and registration requirements.
  So all those things were a part of the regulatory framework the 
Commodities Futures Trading Commission used to make sure that all 
energy markets were not being manipulated and to make sure that 
particularly on large trades, people weren't using large positions in 
the marketplace to affect prices. In fact, it led the chairman of the 
CFTC at the time to say:

        . . . Large Trader information system is one of the 
     cornerstones of the CFTC surveillance program and enables 
     detection of concentrated and coordinated positions that 
     might be used . . . to attempt manipulation.

  So here is the chair of the CFTC basically saying that large trader 
information is most critical to policing the futures market. Yet that 
is exactly what we gave up on certain exchanges when we deregulated the 
futures markets. We ended up deregulating large trades reporting to the 
CFTC.
  So that is what the chairman said about the key tool one uses as a 
cornerstone. Basically, we threw it out and said you don't have to do 
this anymore--a big mistake and part of the reason we don't have more 
insight into why oil company executives are saying oil should be $50 to 
$60 a barrel. Yet we are seeing $127 a barrel, and no one can justify, 
based on supply and demand, why we are here. What we need to ask 
ourselves is why we deregulated these markets and are not putting more 
teeth into protecting consumers.
  So what has happened since deregulation? Well, we created dark 
markets with no transparency. That means that trading happens without 
insight, without those rules I mentioned before. There is no U.S. 
requirement to keep records. There is no large trader reporting. There 
are no speculation limits. There is a high risk for manipulation and 
excessive speculation.
  I ask my colleagues to consider what would happen if we did something 
similar to other areas of our financial markets and organizations. Many 
people think of the stock market today and they say: Well, the stock 
market must have some oversight. We hear stories all the time about 
people who have violated SEC rules.
  Well, that is right. The Securities and Exchange Commission oversees 
the stock market and uses some of those same tools I mentioned to make 
sure there is oversight. Yes, there is oversight of the stock market.
  Many people have heard of NYMEX--the New York Mercantile Exchange--
and wonder whether it meets certain rules such as whether you have to 
register to be a trader there, whether somebody looks at large trading 
positions, and whether there is excessive speculation. The answer is 
yes, in this case we do have a Federal agency that oversees those 
things and we do have oversight. The Chicago Mercantile Exchange is 
another trading platform that is instrumental particularly in 
agricultural commodities and agricultural futures. The CFTC oversees 
the Chicago Mercantile Exchange for those same things: trading 
positions; large traders maybe doing untoward things; people have to 
register; speculation limit; all those things.
  But now all of a sudden we have a new trading platform called the 
InterContinental Exchange, or ICE, that is largely unregulated. Back in 
2000, Enron helped promulgate this idea that they don't have to meet 
those same requirements. So here we are. The stock market, including 
NYMEX and Chicago Mercantile Exchange and others, are all subject to 
CFTC oversight requirements. But then a trading platform where energy 
futures are traded without proper oversight gains a huge market share 
because we deregulated that type of over-the-counter exchange in 2000.
  I can tell my colleagues we need to go back to policing this area of 
energy futures markets. We are not going to give the consumer the 
confidence they need to make sure these markets aren't being 
manipulated or that the price of oil isn't being driven up by hedge 
fund investors and others who happen to have no oversight as our other 
financial trading platforms do.
  So to be clear, ICE is a dark market. That means it doesn't have the 
transparency. There is no direct CFTC review of trading for fraud, 
manipulation or excessive speculation. They don't do any of that. They 
also failed to stop Amaranth, which was a big hedge fund trading in 
natural gas futures.
  The PRESIDING OFFICER (Mr. Cardin). The Senator's time has expired.
  Ms. CANTWELL. Mr. President, I ask unanimous consent to use such time 
as I might consume.

  Mr. SESSIONS addressed the Chair.
  The PRESIDING OFFICER. The Senator from Alabama.
  Mr. SESSIONS. Reserving the right to object, I was thinking I was 
supposed to speak at 4 o'clock and the Senator was to speak after me. I 
don't know how long it might be if she continues. I have a conflict 
coming on my

[[Page S4296]]

schedule too. I need about 10 minutes. So my inquiry, before I object, 
might be how long the Senator might expect to proceed.
  Ms. CANTWELL. I expect to go for probably about another 5 minutes.
  Mr. SESSIONS. I don't object to that, Mr. President.
  The PRESIDING OFFICER. The Senator from Washington is recognized.
  Ms. CANTWELL. Thank you, Mr. President.
  So to continue on this point, Amaranth actually tried to make some of 
these energy futures trades on the NYMEX exchange. What happened is 
NYMEX said: No, you can't hold such large positions on this exchange. 
NYMEX wouldn't allow Amaranth to do it. Instead, they just went to the 
ICE exchange--again, without the transparency--and promulgated some of 
these things which ended up costing consumers billions of dollars.
  Another product is traded on the ICE, but on an exchange they own in 
London, the West Texas Intermediate crude oil contract, which is a 
benchmark for crude oil prices. It is interesting because West Texas 
Oil does give us some indication about what oil futures are going to be 
and what the price of oil is going to be. Since it started trading on 
ICE in February of 2006, the price of crude oil has doubled. So we can 
see it has had a big impact.
  I wish to make sure people understand because Amaranth is an example. 
We had Enron, which had many impacts on the electricity markets in the 
West. It cost billions of dollars in our State and throughout the west 
coast. Many of my consumers were greatly impacted by that. Amaranth 
came along in the natural gas markets and there was similar 
manipulation. So we saw it in electricity, we saw it in natural gas, 
and now we want to make sure oil markets are being policed. But 
Amaranth, as I said, was told to reduce its positions because the NYMEX 
didn't like the fact it had large trading positions. Instead of doing 
that, they switched over to this dark market that is unregulated and 
continued to hold these large positions which caused volatility and 
again, as I said, cost consumers over $9 billion.
  So where are we today? Well, we have in the farm bill taken a good 
step forward in trying to put some teeth back into the CFTC, but we 
need to do more. We need to ensure consistent market rules are there 
for all U.S. oil trading. We need to make sure our U.S. oil-trading 
platform has the type of transparency and the bright light of day on 
it. We need to make sure it is subject to U.S. trading exchanges, that 
those trading exchanges have the oversight of CFTC, and that energy 
traders can't simply justify any exemption and say the burden of proof 
is on the CFTC.
  So what are we talking about? Some people say because the West Texas 
oil contract is being traded on ICE's London exchange it is an 
international exchange. But the crude oil we are talking about being 
traded is produced in the United States, it is delivered in the United 
States, it is consumed in the United States, and it is traded in the 
United States. The only question we have is if it is regulated in the 
United States, and the answer is no, it is being regulated by the 
Financial Services Authority in the U.K. It is a big question mark as 
to what is causing gas prices to be at $127 a barrel, when energy 
analysts and oil company executives will tell you it should be between 
$50 and $60 a barrel.

  So if somebody wants to tell you this product is not a U.S. product 
and should be on this exempt ICE exchange, that is buying something 
they should not be buying. What is important about this is that since 
this deregulation, we have seen explosive growth in the oil futures 
market. In fact, this is 2002, where you can see this on the chart. I 
hope we can get some numbers for 2000. I guess we will probably see 
something that is a little more parallel.
  Look at this futures market, this explosive growth in derivatives 
now--this huge growth compared to where the stock market is today. So 
people are investing all this money in what is a dark market--not all 
of it, but a big portion in what is the dark market. Here, again, is 
what oil prices were. We created the Enron loophole and then the ICE 
started changing the West Texas intermediate oil and the price went up. 
When the dark market--the lack of transparency of trading oil futures--
happened, the price shot up.
  We need to get back to the basics. One of the CFTC commissioners 
said:

       I am generally concerned about the lack of transparency and 
     the need for greater oversight and enforcement of the 
     derivatives industry by the [United Kingdom's Financial 
     Services Authority.]

  We know that another analyst involved in oil trading said:

       Oil's price records are less due to fundamental changes 
     than the increasing proportion of investor demand driving 
     prices higher. I think we'll achieve a price of $150 in the 
     coming six months.

  That was Eugene Weinberg who said that. The people in Washington 
State cannot afford gas coming from $150 a barrel, and I am sure other 
consumers across the country cannot either.
  One of the analysts who spent a lot of time reporting on this said:

       Where is the CFTC now that we need [speculation] limits? It 
     seems to have deliberately walked away from its mandated 
     oversight responsibilities in the world's most important 
     traded commodity, oil.

  I think it is time we get back to the CFTC and their responsibility. 
I will send a letter this week, along with my colleagues--Senator Snowe 
and others--to basically ask the CFTC to reverse its no-action letter 
that allows trade of crude oil, home heating oil, and gasoline futures 
contracts on ICE to be exempt from U.S. oversight and ask the CFTC to 
reinstate the authority it has to look at these dark markets.
  One of the law professors who testified before the committee said:

       The ICE [oil trading] loophole could be ended immediately 
     by the CFTC without any legislation.

  I hope my colleagues will join in signing a letter that says 
basically these markets cannot continue to remain dark. We need, as in 
the stock market, recordkeeping. We need to have large trade reporting 
so we know who is moving large trading volume and impacting the market. 
We need speculation limits and we need monitoring for trade and 
manipulation. These are things we can get the CFTC to do tomorrow.
  It is time to pop the oil price bubble. It is not based on market 
fundamentals of supply and demand. We owe it to our consumers to make 
sure we are policing energy markets. We are going to do all we can to 
make sure we restore whatever is the proper oversight to these markets 
to make sure the deregulation that happened in 2000 is put back into 
place to give consumers more confidence.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Alabama is recognized.

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