[Congressional Record Volume 154, Number 117 (Wednesday, July 16, 2008)]
[Senate]
[Pages S6802-S6804]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           ENERGY SPECULATION

  Mr. DORGAN. Mr. President, my colleague, Senator Bingaman, the 
chairman of the Energy Committee, was talking about a very important 
subject. Almost no American at this point can escape the consequences 
of what is happening with respect to our energy markets: the cost of 
gasoline, the cost of oil, its impact on drivers, its impact on 
truckers, airlines, and farmers. It is pretty unbelievable.
  I have come to the floor today to talk about a bill that was 
introduced last evening, S. 3268, by the majority leader, Senator Reid. 
I have been working with Senator Reid--and many others have worked with 
him as well--to construct a piece of legislation dealing with excess 
energy speculation. I am convinced that dealing with excess speculation 
will put downward pressure on oil and gas prices.
  Now, I introduced a piece of legislation in June called the End Oil 
Speculation Act of 2008. I have also been speaking on the issue of 
excess speculation in the energy markets for several months on the 
floor of the Senate. I have been very pleased to work with Senator Reid 
and others, and I am pleased with the result of the piece of 
legislation Senator Reid has introduced with my cosponsorship and 
others. It embodies most of that which was included in the legislation 
I had previously introduced in the Senate.
  I wish to talk about why this is important. Now, I understand there 
are some people who scoff at this saying: Well, do you know what, there 
is no excess speculation. If we are going to deal with the energy 
issue, we have to drill, drill, drill.
  We can drill. I support drilling. But the fact is, you can put a 
drill bit in the ground today, and you are not going to do one thing 
with respect to gas and oil prices. That is 2 years, 5 years, 10 years 
off. The question is, What do you do about what is happening today with 
excess speculation in these markets?
  Now, excess speculation is not new. It has happened in other markets, 
and it sometimes breaks the market. When the market is broken, there is 
a responsibility, in my judgment, to take action.
  So let me describe what I think we face. I also want to talk for a 
moment about this new piece of legislation we introduced last evening, 
which I fully support. I am sure waves of opponents will come to the 
floor and certainly come to offices around this Capitol Building and 
try to defeat it.
  First of all, I have shown this many times: Fadel Gheit has testified 
before our Energy Committee. For 30 years, Mr. Gheit has been a top 
energy analyst with Oppenheimer & Co. Here is what he says:

       There is absolutely no shortage of oil. I'm absolutely 
     convinced that oil prices shouldn't be a dime above $55 a 
     barrel.

  What he means is there is unbelievable excess speculation in the oil 
futures market. He says:

       I call it the world's largest gambling hall . . . It's open 
     24/7 . . . Unfortunately it's totally unregulated . . . This 
     is like a highway with no cops and no speed limit, and 
     everybody's going 120 miles per hour.

  So you wonder, is there excess speculation going on that has driven 
the price of oil and gas up like a Roman candle? Well, according to a 
study that was done by the House Subcommittee on Oversight, in the year 
2000, 37 percent of the people in this market were speculators. Now it 
is 71 percent of the people in these energy markets who are 
speculators.
  Well, how does that happen? We have a regulator: the Commodity 
Futures Trading Commission. They are supposed to wear the striped 
shirts like referees at a basketball or football game. They wear the 
striped shirts and have a whistle, except these folks forgot to put on 
their shirt and don't know how to blow a whistle. They are not 
interested in being a referee. They say: Whatever happens, happens.
  Mr. Lukken, the Acting Chairman of the CFTC, says: Everything is 
fine: ``Based on our surveillance efforts to date, we believe that 
energy futures markets have been largely reflecting the underlying 
fundamentals of these markets,'' which means there is no excess 
speculation here. That is from the top regulator.
  From the Secretary of Energy, Sam Bodman, last month: There's no 
evidence we can find that speculators are driving futures prices [for 
oil].
  Oh, really? Let me show you this chart. This is a chart by the Energy 
Information Administration. We fund that agency with $100 million a 
year. These are the folks who make projections. Take a look at every 
one of these projections for the last year, as shown on this chart: In 
May of 2007, here is what they said the price of oil would be. In July 
of 2007, here is what they said the price of oil would be. In November 
of 2007, here is where the price of oil would go. Yet here is where the 
price actually went: straight up.
  Why were they so wrong? Because this is not about supply and demand. 
It is about an orgy of speculation--unbelievable excess speculation--
that has driven this market like this.
  Now, we can ignore all this. You can pretend it does not exist. But 
every bubble bursts. We know that. The question is, when? In the 
meantime, how much damage will be done to this country's economy? How 
much damage to the airline industry, the trucking industry, to farmers, 
to families trying to figure out: How do I borrow enough money to fill 
the gas tank in order to drive to work?

[[Page S6803]]

  So here is what the legislation will do that we have introduced. As I 
describe this, let me say this: There are a lot of press conferences 
around here talking about what we have to do. I support all of it. In 
fact, Senator Bingaman, myself, Senator Domenici, and Senator Talent 
were the four original cosponsors of legislation of opening lease 181 
in the Gulf of Mexico. That is now done. That is law. I support 
drilling offshore. I demonstrated that by the lease 181 position.
  I do not support drilling everywhere. And if drilling is our answer 
every 20 years, that is called yesterday forever. I am much more 
interested in doing a lot of everything: conservation, efficiency, 
drilling, especially renewables, and I am especially interested in 
something that is game changing. What I would like to do, on an 
emergency basis, is put in place something that 10 years from now will 
allow us to understand we are using energy in a very different way, and 
we do not need so much oil from Saudi Arabia, Kuwait, Iraq, and 
Venezuela.
  But that is not what some would have us do. The whole issue--the 
master narrative--for them is: You have to drill, you have to drill, 
you have to drill right now. Some of the same people who talk about 
that ignore the growing bubble in the oil futures market that has 
driven up the price of oil double in 1 year.
  Now, I ask anybody in this Chamber to provide me and the American 
people with anything that has changed with supply and demand that 
justifies the doubling of price in 1 year. They will not do it because 
you cannot do it. I had one of the top people on Wall Street, from one 
of the biggest firms on Wall Street, come to see me. He is one of these 
guys that talked so fast, when he was finished talking, I was out of 
breath. He could not answer the question when he came to my office, and 
he could not answer the question when he left my office.
  What has happened with respect to supply and demand that justifies 
the doubling of the price of oil in 1 year? The answer is: Nothing has 
happened in supply and demand in the last year. What has happened is 
this unbelievable rush of new money into these futures markets through 
speculators. Now, what is a speculator? First of all, these markets are 
very important. We had a futures market established in 1936 for a very 
important reason. Those who are trading--that is producers and 
consumers--a physical product need to be able to hedge their risks. But 
a substantial portion of that which is now in those futures markets is 
not about hedging risk by producers and consumers of a physical 
product. It is about people who have no interest in the product. They 
have interests in exchanging contracts for the purpose of making money, 
and they have driven up these prices in a very dramatic way.
  So let me describe what we propose to do. We propose to have a 
regulatory agency--one that so far has been dead from the neck up--do 
the following things: No. 1, distinguish between legitimate hedging--
that is, hedging between producers and consumers of a physical product 
in order to hedge risk--distinguish between that and all other trades 
which are purely speculative trades having nothing to do with what the 
product is. They are just interested in making money with respect to 
their own speculation.
  I have said many times that Will Rogers described this in the 1930s. 
He talked about people who buy things they will never get from people 
who never had it--and in these days with money they don't possess. But 
it is causing dramatic damage to this county's economy when you have a 
bubble of speculation occur in this commodities market.
  To those who say it is not happening, I would ask them to bring this 
chart to the floor from the Energy Information Administration and take 
a look at the last eight estimates of prices for energy based on supply 
and demand by the best people they have to evaluate supply and demand. 
They should take a look at what has happened to the price of oil 
relative to what EIA officials expected to have happen, evaluating 
supply and demand. If you don't get excess, unbelievable, relentless 
speculation out of this chart, then you don't get it at all.
  Now, the proposal that has been offered is S. 3268. I indicated it 
requires the delineation between normal hedging of a physical product 
by producers and consumers as opposed to those who are engaged in pure 
speculation.
  Then, it requires position limits that are significant against those 
who are pure speculators. Those position limits are very important 
because that is what helps wring the speculators out of this 
marketplace.
  The proposal also increases regulation of Foreign Boards of Trade, 
index traders, swap dealers, and over-the-counter transactions, among 
other things.
  It requires the Commodity Futures Trading Commission to convene an 
international working group to work to find ways to standardize 
regulation and protect the futures markets from non-legitimate hedge 
trading.
  The proposal would also require the CFTC to use its existing 
authority to revoke or modify all prior actions or decisions that 
prevent the CFTC from protecting legitimate hedge trades and to 
discourage speculative trades. Inexcusably, the Commodity Futures 
Trading Commission itself has taken the position: Do what you want to 
do. We will not look. Don't worry. In fact, the evidence of that is all 
in what are called ``no action'' letters. Boy, what a description for a 
regulatory agency: no action letters. They put them out again and again 
and again and again, which says: Do you know what, let's blindfold 
ourselves. We propose we blindfold ourselves. It is unbelievable, in my 
judgment.
  We provide that 60 days after passage of this bill, a report to 
Congress must be offered by the regulatory agency with respect to any 
additional authority they need. But we take the position the CFTC has 
ample authority to do all the things we have described but does not use 
the authority because it is not interested in regulating.

  So there are a number of things we believe are important. Protecting 
legitimate hedge trading, that is a very important part of this market. 
This market is an important market. But when a market is broken or 
perverted or a market is a place of excess or relentless speculation 
that damages this country's economy, then I think we have a 
responsibility to take action.
  Now, some will say: Well, you have to do these six things. We would 
not accept a bill or we would not even consider a bill that deals with 
speculation unless you do the other five or six things. It is akin to 
somebody who has a heart attack who is grossly obese, dramatically 
overweight. He has a heart attack and somebody says: Well, instead of 
working on the heart, let's work on this overweight issue. Let's try to 
deal with this obesity. Well, what about dealing with the heart attack 
first? How about dealing with the things you can deal with first that 
puts some downward pressure on prices?
  So I expect this town now, from having filed S. 3268, will be full of 
people who will say: There is no speculation. Or if there is 
speculation, it is a minor amount. Or if there is speculation, this is 
the wrong remedy. Or if you take this remedy, you drive all trading 
overseas, which is absurd, by the way. Or if you do this, you ruin the 
markets. I expect we will see all those excuses.
  To all those who come to the floor to say: I support conservation, I 
support efficiency, I support renewable energy, I support additional 
drilling, I say: Do you know what, I agree with all that. I agree with 
all that, though I do not support indiscriminate drilling everywhere. 
That does not make any sense to me. But I agree with a remedy that 
says: We should do a lot of things and a lot of things well. But I also 
think if all we do every 20 years is talk about more drilling, you are 
not talking about anything that is game changing for this country. That 
is called yesterday forever. Congratulations on the policy, but it is a 
policy that hardly begins to free this country from the shackles that 
bind it with respect to the current energy policy. Even as we consider 
all of those other issues--and we must on an emergency basis--I think 
we ought to take the first big step and deal with this issue of excess 
speculation in the market.

  Again, I come back to this chart. If you don't believe excess 
speculation exists, then answer this question: What has happened in the 
last 12 to 14 months that justifies the doubling of the price of oil? 
Demand up, you say. No, I am sorry, that is not the case. Demand is 
slightly less than was expected

[[Page S6804]]

in every one of these circumstances. So if demand isn't up, you may 
say: Well, but China and India, Senator Dorgan. Don't you understand 
that? Yes; 12, 14 months ago we understood what China and India were 
expected to demand at that point.
  My point is aggregate demand in the United States is down slightly. 
China and India are up. It was expected that our demand would increase 
for the first 5 months of this year. In fact, we experienced increases 
in inventory and stocks of the supply for the first 5 months. So you 
cannot point--and I have never found an expert who can point--in the 
last 12 to 14 months, to something that has changed in any significant 
way in supply and demand that justifies the doubling of oil prices.
  So my proposition is this: Let's deal with what most people 
understand to be a problem. Excess speculation is rampant and the 
marketplace is broken. Let's demand the regulators begin to earn their 
salary by thoughtful regulation with that which is prescribed in the 
legislation that I have introduced. Then, at the same time, we should 
move on to other issues for the coming decade when we ought to 
dramatically change the way we use and produce energy in this country--
renewables, conservation, efficiency and so much more.
  I see I have exceeded my time.
  I yield the floor.
  Mr. NELSON of Florida. Mr. President, would the Senator yield for a 
quick question?
  The ACTING PRESIDENT pro tempore. The Senator's time has expired.
  Mr. NELSON of Florida. May I ask unanimous consent for 30 seconds to 
ask the Senator one question?
  The ACTING PRESIDENT pro tempore. Is there objection?
  Mr. ALEXANDER. Mr. President, reserving the right to object, there 
will be no objection if an equal amount of time that is used by the 
Democratic side will be added to the Republican side.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  Mr. NELSON of Florida. Mr. President, I thank the Senator for 
yielding. Would the Senator address the question of--in his very 
excellent and very compelling argument he has just made about 
speculation, it has been determined that speculation may be as much as 
one-third the cost of gasoline, even up to one-half the cost of 
gasoline that is as a result of speculation?
  Mr. DORGAN. Mr. President, I ask unanimous consent for 30 seconds to 
respond, and that the Senator from Tennessee then be given an 
additional 1 minute.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  Mr. DORGAN. Mr. President, we have had testimony from experts who 
have said that this excess speculation has driven up the price of oil 
and gasoline, in some cases they estimate by 20 percent; in other cases 
they estimate as much as 40 percent. I don't think there is any 
question that if you look at this line--this is the line where prices 
have gone--that you have to conclude this has had a dramatic impact on 
the price. You can't see these things swing back and forth $4 and $7 
and run up to $145 a barrel like some sort of wild curve, behind which 
there are no set of facts that would justify it. That is why it is 
important, I believe, for this Congress to tackle this issue.
  I yield back the remaining time.
  The ACTING PRESIDENT pro tempore. The Senator from Tennessee is 
recognized.
  Mr. ALEXANDER. Mr. President, how much time do we now have?
  The ACTING PRESIDENT pro tempore. There is 36\1/2\ minutes remaining.
  Mr. ALEXANDER. I intend to consume about 12. Would the chair please 
let me know when 10 have expired?
  The ACTING PRESIDENT pro tempore. The Chair will so advise.

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