[Congressional Record Volume 155, Number 7 (Tuesday, January 13, 2009)]
[Senate]
[Pages S338-S341]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. NELSON, of Florida:
  S. 221. A bill to amend the Commodity Exchange Act to require energy 
commodities to be traded only on regulated markets, and for other 
purposes; to the Committee on Agriculture, Nutrition, and Forestry.
  Mr. NELSON of Florida. Mr. President, over the past half year, as the 
price of a barrel of oil has rocketed into the sky--all the way to $147 
a barrel and in 1 day the price escalating $25--there have been a 
number of Senators on this floor and in committee meetings and in 
private discussions saying: Why won't people wake up and realize it is 
not the economic marketplace of supply and demand that is determining 
the price of oil? Who wants us to believe that? The oil companies, of 
course. In fact, the price of oil has escalated not because there is a 
tightness on the world marketplace of demand for oil. Indeed, at the 
very time of a 6-month period from the last quarter of last year until 
the first quarter of 2008--that 6-month period when the demand for oil 
was going down and the supply was going up, which would indicate the 
price should be going down if supply is greater than demand--exactly 
the reverse was true. The price kept rocketing to the Moon.
  It defied the laws of supply and demand. Yet we had everybody running 
out saying, ``Oh, it is the tight world marketplace,'' and it was 
difficult to get people to listen to a group of Senators who said it 
was because the commodities futures exchanges had been deregulated and, 
therefore, unregulated oil futures contracts speculation was running 
wild.
  Then, once it got up to $147 a barrel, what happened? The liquidity 
crisis hit, the economic crisis of confidence hit--not only in America 
but across the world. A lot of this was precipitated by the faulty 
mortgages, the subprime mortgages we are now not paying off in the 
revenue stream because people weren't paying their mortgages. Those 
mortgages had been bundled into securities and then bought and sold, 
and a lot of financial institutions, hedge funds, mutual funds and, 
indeed, big investments for pension funds started dumping those because 
they needed cash, and they started dumping their positions on oil 
futures commodities that they had purchased in this speculative frenzy 
that ran the price up to $147 a barrel. What happened? The exact 
reverse. The price of oil starts coming down. So what should we do 
about this? Well, we ought to do what a number of us have been saying: 
We ought to go back and reregulate what we have jurisdiction over, 
which is the Commodities Futures Trading Commission.

  Now, why was it deregulated? It was deregulated in the dead of night 
before Christmas in the year 2000, and it was deregulated at the behest 
of the Enron Corporation. And once they deregulated that commodities 
futures trading market on energy, it allowed them to go out and 
speculate on energy contracts. What was the first result? In the early 
part of this decade we saw it happen in California. We saw the 
electricity contracts start a runup in speculative bidding, to which it 
went up--the cost of electricity--by as high as 300 percent in 
California. Once that started to unravel, then we know what happened: 
Enron started to unravel with all the shenanigans that had gone on 
there.
  But here we are 7 and 8 years later, after the law was changed, and 
we haven't been able to get it changed back because people come out 
here and say: Oh, it is supply and demand in the world market for oil, 
and they come up with a simple slogan, as if that was going to handle 
the price of oil when it was hitting $147 and translated into about $4-
gallon-gasoline. Their simple little slogan was ``drill baby, drill,'' 
as if that were going to solve the problem of the price of gasoline and 
the price of oil.
  But now we hear--and people are starting to pay attention--we ought 
to reregulate this futures commodities trading. Now, what do we mean by 
regulate? I am talking about simple little things, such as you would 
have to use the oil that you are bidding on, such as an airline does. 
It locks in a future price for fuel by bidding on these future oil 
contracts. An airline, in fact, does use oil. By taking away the 
regulation, they have removed that ability. Or to give another example 
of regulation: A Commodities Futures Trading Commission could say you 
have to put a certain amount of money down if you are going to buy a 
future oil contract. Instead of getting it with nothing down, you have 
to put some skin in the game. But if you completely deregulate it, what 
you leave it to is the speculator to go in and bid that price up and up 
and up.
  Now, this is what we have been saying on the floor of this Senate for 
the last 6 or 8 months, a number of us--Senator Dorgan, Senator 
Cantwell, this Senator, and several other Senators--but it has been 
hard to get an audience that would listen. Well, no less a respected 
institution than CBS News ``60 Minutes'' last Sunday night broke it 
open and put it about as clearly as I have ever heard in posing this 
question: Did speculation fuel oil price swings?
  And what they concluded was that 6 months ago, when oil hit its 
alltime high of $147, and gas was up around $4 a gallon, it created a 
frenzy that fed into irrational and false claims that the problem was 
just supply and demand and that the solution was to drill for more oil.
  Well, it looks a lot different now. That frenzy that got mixed up in 
Presidential politics as well, with those simplified mantras of ``drill 
baby, drill,'' fueled by a slick public relations campaign, that was 
funded by deep-pocket oil companies. Yet those same oil companies 
testified in the spring of 2008 that if supply and demand were the sole 
driver of oil prices, that oil should cost no more than $55 a barrel. 
We had executives of two of the big major oil companies say the normal 
laws of supply and demand would say that oil ought to be in the range 
of $55 to $65 a barrel, and they testified, this Senator thinks, 
correctly.
  So ask yourself: Could supply and demand justify the wild swings in 
prices? And in that one instance where oil jumped $25 in 1 day for a 
barrel of oil, ask yourself: Could the new oil demands by China and 
India, that have needs for new oil products, could that have suddenly 
caused that price to jump so much in a single day? And the answer, 
clearly, is: No. It was speculation that caused that bubble to grow. 
Wall Street investors shifted billions of dollars out of the stock 
market and into the commodities futures market

[[Page S339]]

and ultimately into oil, and that is what was the biggest driver of 
running up the price of oil and gasoline.
  What is even more powerful in demonstrating the influence of 
speculators on oil prices is examining what happened to those prices 
after we in the Senate, and down at the other end of the Capitol in the 
House, started threatening regulation again. Well, guess what happened. 
The prices went down. When Wall Street experienced a financial meltdown 
with the collapse of Lehman Brothers and the near collapse of AIG, 
prices fell even more as the Wall Street speculators got out of the oil 
futures markets to the tune of $70 billion. The speculative bubble in 
commodities, which was not only energy but agricultural commodities, 
all of a sudden bubble popped.
  Demand for oil in the United States is down by 5 percent, but the 
price of oil is down 75 percent. So we shouldn't be fooled by the drop 
in prices. Some financial analysts, fortunately, are not fooled by the 
drop in prices. They are advising investors that low oil prices are a 
temporary phenomenon and that oil prices will average above $75 a 
barrel over the next 5 years.
  Well, a number of us, months ago, filed a bill to stop the trading of 
oil and other energy commodities on the unregulated exchanges, and what 
the bill does is it turns the clock back to a change in law that was 
pushed by the Enron Corporation, known as the Enron loophole, which 
opened the way for a flood of speculative money in these commodity 
markets. I am introducing that bill again today, and I seek our 
colleagues' support.
  We must be vigilant to ensure that Wall Street investors do not take 
advantage of the lax regulation to reap profits by driving up the price 
of oil and making driving a lot more expensive for the rest of us. Let 
us remember that we saw what happened with another form of unregulated 
financial instruments. That was those insurance policies that had a 
fancy name, called credit default swaps. They were unregulated. Look 
what happened: The collapse of AIG that had to come in to the tune of 
upward of a $100 billion rescue from the Federal Government. I don't 
believe it is simple coincidence that the same legislation that let 
those credit default swaps escape regulation also allowed energy 
traders to conduct their business in the shadows. We need to bring that 
industry out of the darkness and into the full light of day.
  Mr. President, I wish to quote a couple lines from this Sunday's 
interview on CBS News ``60 Minutes.'' A representative of the Petroleum 
Marketers Association is interviewed, a Mr. Gilligan, and he says:

       Approximately 60 to 70 percent of the oil contracts in the 
     futures markets are now held by speculative entities, not by 
     the companies that need oil, not by the airlines, not by the 
     oil companies, but by investors that are looking to make 
     money from their speculative positions.

  Now, that is a representative of the oil companies that said that. 
Furthermore, the investigative reporter, Steve Kroft, quotes a fellow 
named Michael Masters, and he states:

       In a five-year period, Masters said the amount of money 
     institutional investors, hedge funds and the big Wall Street 
     banks had placed in the commodities markets went from $13 
     billion to $300 billion. Last year, 27 barrels of crude were 
     being traded every day on the New York Mercantile Exchange 
     for every 1 barrel of oil that was actually being consumed in 
     the United States.

  That is Mr. Kroft's analysis on ``60 Minutes,'' and he was referring 
to a former Wall Street trader named Michael Masters.
  I wish to end by further quoting Mr. Kroft from 60 Minutes:

       A recent report out of MIT analyzing world oil production 
     and consumption also concluded that the basic fundamentals of 
     supply and demand could not have been responsible for last 
     year's runup in oil prices.

  Another quote from an interviewee: ``From quarter four of '07 until 
the second quarter of '08''--that is a 6-month period--``the Energy 
Information Administration said that supply went up, worldwide supply 
went up, and worldwide demand went down . . . This was the period of 
the spike'' in oil prices ``so you had the largest price increase in 
history during a time when actual demand was going down and actual 
supply was going up during that same period. The only thing that makes 
sense that lifted the price was investor demand''--in other words, the 
speculators making an artificial demand.
  I think it is clear. That is why I am introducing this legislation. I 
look forward with great optimism to the passage of this kind of 
legislation.
  Mr. President, I ask unanimous consent that the text of the bill and 
a ``60 Minutes'' transcript be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                 S. 221

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. REGULATION OF ENERGY COMMODITIES.

       (a) Definitions.--Section 1a of the Commodity Exchange Act 
     (7 U.S.C. 1a) is amended--
       (1) by redesignating paragraphs (13) through (34) as 
     paragraphs (14) through (35), respectively;
       (2) by inserting after paragraph (12) the following:
       ``(13) Energy commodity.--The term `energy commodity' 
     includes--
       ``(A) crude oil;
       ``(B) natural gas;
       ``(C) heating oil;
       ``(D) gasoline;
       ``(E) metals;
       ``(F) construction materials;
       ``(G) propane; and
       ``(H) other fuel oils.''; and
       (3) by striking paragraph (15) (as redesignated by 
     paragraph (1)) and inserting the following:
       ``(15) Exempt commodity.--The term `exempt commodity' means 
     a commodity that is not--
       ``(A) an agricultural commodity;
       ``(B) an energy commodity; or
       ``(C) an excluded commodity.''.
       (b) Current Agricultural Commodities.--Section 5(e)(1) of 
     the Commodity Exchange Act (7 U.S.C. 7(e)(1)) is amended by 
     striking ``agricultural commodity enumerated in section 
     1a(4)'' and inserting ``agricultural commodity or an energy 
     commodity''.
       (c) Conforming Amendments.--
       (1) Section 2(c)(2)(B)(i)(II)(cc) of the Commodity Exchange 
     Act (7 U.S.C. 2(c)(2)(B)(i)(II)(cc)) is amended--
       (A) in subitem (AA), by striking ``section 1a(20)'' and 
     inserting ``section 1a(21)''; and
       (B) in subitem (BB), by striking ``section 1a(20)'' and 
     inserting ``section 1a(21)''.
       (2) Section 13106(b)(1) of the Food, Conservation, and 
     Energy Act of 2008 is amended by striking ``section 1a(32)'' 
     and inserting ``section 1a''.
       (3) Section 402 of the Legal Certainty for Bank Products 
     Act of 2000 (7 U.S.C. 27) is amended--
       (A) in subsection (a)(7), by striking ``section 1a(20)'' 
     and inserting ``section 1a''; and
       (B) in subsection (d)--
       (i) in paragraph (1)(B), by striking ``section 1a(33)'' and 
     inserting ``section 1a''; and
       (ii) in paragraph (2)(D), by striking ``section 1a(13)'' 
     and inserting ``section 1a''.
                                  ____


    The Price of Oil--Historic Oil Prices Were Result of Financial 
         Speculation From Wall Street and Not Supply and Demand

       Steve Kroft: About the only economic break most Americans 
     have gotten in the last six months has been the drastic drop 
     in the price of oil, which has fallen even more precipitously 
     than it rose. In a year's time, a commodity that was 
     theoretically priced according to supply and demand, doubled 
     from $69 a barrel to nearly $150. And then, in a period of 
     just three months, crashed along with the stock market. So 
     what happened? It's a complicated question, and there are 
     lots of theories. But many people believe it was a 
     speculative bubble, not unlike the one that caused the 
     housing crisis, and that it had more to do with traders and 
     speculators on Wall Street than with oil company executives 
     or sheiks in Saudi Arabia.
       (Oil refinery; workers at refinery; stock market traders on 
     floor; New York Mercantile Exchange; trading screen; farmer 
     working field; corn; airplane; trading screen; oil refinery)
       (Voiceover) To understand what happened to the price of 
     oil, you first have to understand the way it's traded. For 
     years it's been bought and sold on something called the 
     commodities futures market. Here at the New York Mercantile 
     Exchange, it's traded alongside cotton and coffee, copper and 
     steel by brokers who buy and sell contracts to deliver those 
     goods at a certain price at some date in the future. It was 
     created so that farmers could gauge what their unharvested 
     crops would be worth months in advance so that factories 
     could lock in the best price for raw materials, and airlines 
     could manage their fuel costs. But more than a year ago, that 
     market started to behave erratically. And when oil doubled to 
     more than $147 a barrel, no one was more suspicious than Dan 
     Gilligan.
       Mr. Dan Gilligan: We have to make sure that the futures 
     market is an honest market.
       (Dan Gilligan speaking; men listening to Gilligan; oil 
     tanker; Gilligan; crowd talking to Gilligan; stock market 
     traders)
       Kroft: (Voiceover) As the president of the Petroleum 
     Marketers Association, he represents more than 8,000 retail 
     and wholesale suppliers, everyone from home heating oil 
     companies to gas station owners. When we talked to him last 
     summer, his members were getting blamed for gouging the 
     public,

[[Page S340]]

     even though their costs had also gone through the roof. He 
     told us the problem was in the commodities markets, which had 
     been invaded by a new breed of investor.
       Mr. Gillian: Approximately 60 to 70 percent of the oil 
     contracts in the futures markets are now held by speculative 
     entities, not by companies that need oil, not by the 
     airlines, not by the oil companies, but by investors that are 
     looking to make money from the speculative positions.
       Kroft: They don't actually take delivery of the oil?
       Mr. Gilligan: No, no.
       Kroft: All they do is----
       Mr. Gilligan: All they do is buy the paper and hope that 
     they can sell it for more than they paid for it before they 
     have to take delivery.
       Kroft: They're trying to make money on the market for oil?
       Mr. Gilligan: Absolutely, on the volatility that exists in 
     the market. They make it going up and down.
       (Sean Cota unhooking hose from truck; Cota filling tank; 
     calculator)
       Kroft: (Voiceover) He says his members in the home heating 
     oil business, like Sean Cota of Bellows Falls, Vermont, were 
     the first to notice the effects a few years ago, when prices 
     seemed to disconnect from the basic fundamentals of supply 
     and demand. Cota says there was plenty of product at the 
     supply terminals, but the prices kept going up and up.
       Mr. Sean Cota: We've had three price changes during the day 
     where we pick up products, actually don't know what we paid 
     for, and we'll go out and we'll sell that to the retail 
     customer, guessing at what the price was. The volatility is 
     being driven by the huge amounts of money and the huge 
     amounts of leverage that is going into these markets.
       (Michael Masters at desk; computer screen)
       Kroft: (Voiceover) About the same time hedge fund manager 
     Michael Masters reached the same conclusion. Masters' 
     expertise is in tracking the flow of investments into and out 
     of financial markets, and he noticed huge amounts of money 
     leaving stocks for commodities and oil futures, most of it 
     going into index funds, betting that the price of oil was 
     going to go up.
       Who was buying this paper oil, pension fund?
       Mr. Michael Masters: California pension fund, Harvard 
     endowment, lots of large institutional investors. And by the 
     way, other investors, hedge funds, Wall Street trading desk, 
     were following right behind them putting money, sovereign 
     wealth funds were putting money in the futures markets, as 
     well. So you had all these investors putting money in the 
     futures markets, and that was driving the price up.
       (New York Stock Exchange; stock traders; oil refinery)
       Kroft: (Voiceover) In a five-year period, Masters said the 
     amount of money institutional, investors, hedge funds and the 
     big Wall Street banks had placed in the commodities markets 
     went from $13 billion to 300 billion. Last year, 27 barrels 
     of crude were being traded every day on the New York 
     Mercantile Exchange for every one barrel of oil that was 
     actually being consumed in the United States.
       Mr. Masters: We talked to the largest physical trader of 
     crude oil, and they told us that, compared to the size of the 
     investment inflows--and remember, this is the largest 
     physical crude oil trader in the United States--they said 
     that, ``We are basically a flea on an elephant,'' that that's 
     how big these flows were.
       (Senate hearings; Lawrence Eagles)
       Kroft: (Voiceover) Yet when Congress began holding hearings 
     last summer and asked Wall Street banker Lawrence Eagles of 
     JPMorgan what role excessive speculation played in rising oil 
     prices, the answer was little to none.
       Mr. Lawrence Eagles: We believe that high energy prices are 
     fundamentally a result of supply and demand.
       (JPMorgan building; e-mail; oil refinery; oil tank; oil 
     register)
       Kroft: (Voiceover) As it turns out, not even JPMorgan's 
     chief global investment officer agreed with him. The same day 
     that Eagles testified, this e-mail went out to clients, 
     saying ``an enormous amount of speculation'' ran up the 
     price, and ``$140 in July was ridiculous.'' If anyone had any 
     doubts, they were dispelled a few days after that hearing, 
     when the price of oil jumped $25 in a single day.
       September 22nd.
       Mr. Michael Greenberger: September 22nd.
       (Michael Greenberger; CFTC building; oil pipelines)
       Kroft: (Voiceover) Michael Greenberger, a former director 
     of trading for the Commodity Futures Trading Commission, the 
     federal agency that oversees oil futures, says there were no 
     supply disruptions that could have justified such a big 
     increase.
       Mr. Greenberger: Did China and India suddenly have gigantic 
     needs for new oil products in a single day? No. Everybody 
     agrees supply-demand could not drive the price up $25, which 
     was a record increase in the price of oil. The price of oil 
     went from somewhere in the 60s to $147 in a--less than a 
     year. And we were being told on that runup, it's supply-
     demand, supply-demand, supply-demand.
       (Oil refinery; Masters; woman talking; Masters)
       Kroft: (Voiceover) A recent report out of MIT analyzing 
     world oil production and consumption also concluded that the 
     basic fundamentals of supply and demand could not have been 
     responsible for last year's runup in oil prices. And Michael 
     Masters says the US Department of Energy's own statistics 
     showed that if the markets had been working properly the 
     price of oil should have been going down, not up.
       Mr. Masters: From quarter four of '07 until the second 
     quarter of '08, the EIA, the Energy Information 
     Administration said that supply went up, worldwide supply 
     went up, and worldwide demand went down. So you have supply 
     going up and demand going down, which generally means that 
     price is going down.
       Kroft: And this was the period of the spike?
       Mr. Masters: This was the period of the spike. So you had 
     the largest price increase in history during a time when 
     actual demand was going down and actual supply was going up 
     during the same period. However, the only thing that makes 
     sense that lifted the price was investor demand.
       (Oil refinery; buildings)
       Kroft: (Voiceover) Masters believes the investor demand for 
     commodities and oil futures in particular, was created on 
     Wall Street by hedge funds and the big Wall Street investment 
     banks like Morgan Stanley, Goldman Sachs, Barclays and 
     JPMorgan, who made billions investing hundreds of billions of 
     dollars of their clients' money.
       Mr. Masters: The investment banks facilitated it. You know, 
     they found folks to write papers espousing the benefits of 
     investing in commodities. And then they promoted commodities 
     as a, quote-unquote, ``asset class.'' Like, you could invest 
     in commodities just like you could in stocks or bonds or 
     anything else, like they were suitable for long-term 
     investment.
       (Gilligan)
       Kroft: (Voiceover) Dan Gilligan of the Petroleum Marketers 
     Association agreed.
       Are you saying that companies like Goldman Sachs and Morgan 
     Stanley and Barclays have as much to do with the price of oil 
     going up as Exxon or Shell?
       Mr. Gilligan: Oh, absolutely. Yes. I tease people sometimes 
     that, you know, people say, ``Well, who's the largest oil 
     company in American?'' And they'll always say ``Well, 
     ExxonMobil or Chevron or BP.'' But I'll say, ``no, Morgan 
     Stanley.''
       (Morgan Stanley building; flow chart of Morgan Stanley 
     ownerships)
       Kroft: (Voiceover) Morgan Stanley isn't an oil company in 
     the traditional sense of the word. It doesn't own or control 
     oil wells or refineries or gas stations. But according to 
     documents filed with the Securities and Exchange Commission, 
     Morgan Stanley is a significant player in the wholesale 
     market through various entities controlled by the 
     corporation.
       It not only buys and sells the physical product through 
     subsidiaries and companies that it controls, Morgan Stanley 
     has the capacity to store and hold 20 million barrels. These 
     storage tanks behind me in New Haven, Connecticut, hold 
     Morgan Stanley heating oil bound for homes in New England, 
     where it controls nearly 15 percent of the market.
       (Building; oil refinery; pipeline; storage terminals; men 
     walking; buildings; barge; oil storage tank)
       Kroft: (Voiceover) The Wall Street bank Goldman Sachs also 
     has huge stakes in companies that own a refinery in 
     Coffeyville, Kansas, and control 43,000 miles of pipeline and 
     more than 150 storage terminals. And analysts at both 
     investment banks contributed to the oil frenzy that drove 
     prices to record highs. Goldman's top oil analyst predicted 
     last March that the price of a barrel was going to $200. 
     Morgan Stanley predicted $150 a barrel. Both companies 
     declined our requests for an interview, but maintain that 
     their oil businesses are completely separate from their 
     trading activities, and that neither influence the 
     independent opinions of their analysts. There is no evidence 
     that either company has done anything illegal.
       Is there price manipulation going on?
       Mr. Gilligan: I can't say. And the reason I can't say is 
     because nobody knows. Our federal regulators don't have 
     access to the data. They don't know who holds what positions.
       Kroft: Why don't they know?
       Mr. Gilligan: Why don't they know?
       Kroft: Yeah.
       Mr. Gilligan: Because federal law doesn't give them the 
     jurisdiction to find out.
       (Oil storage; oil refinery; pipeline; Wall Street sign; 
     American flags; Capitol building; stock exchange)
       Kroft: (Voiceover) It's impossible to tell exactly who is 
     buying and selling all those oil contracts because most of 
     the trading is now conducted in secret, with no public 
     scrutiny or government oversight. Over time, the big Wall 
     Street banks were allowed to buy and sell as many oil 
     contracts as they wanted for their clients, circumventing 
     regulations intended to limit speculation. And in 2000, 
     Congress effectively deregulated the futures market, granting 
     exemptions for complicated derivative investments called oil 
     swaps, as well as electronic trading on private exchanges.
       Who is responsible for deregulating the oil future market?
       Mr. Greenberger: You'd have to say Enron. This was 
     something they desperately wanted and they got.
       (Greenberger; CFTC building; Enron; people at desks)
       Kroft: (Voiceover) Michael Greenberger, who wanted more 
     regulation while he was at

[[Page S341]]

     the Commodity Futures Trading Commission, not less, says it 
     all happened when Enron was the seventh largest corporation 
     in the United States.
       Mr. Greenberger: (Voiceover) This was when Enron was riding 
     high, and what Enron wanted, Enron got.
       Kroft: Why did they want a deregulated market in oil 
     futures?
       (Traders at desks; spreadsheet; man at computer)
       Mr. Greenberger: Because they wanted to establish their own 
     little energy futures exchange through computerized trading.
       (Voiceover) They knew that if they could get this trading 
     engine established without the controls that had been placed 
     on speculators, they would have the ability to drive the 
     price of energy products in any way they wanted to take it.
       When Enron failed, we learned that Enron and its 
     conspirators who used their trading engine were able to drive 
     the price of electricity up, some say by as much as 300 
     percent, on the West Coast.
       Kroft: Is the same thing going on right now in the oil 
     business?
       Mr. Greenberger: Every Enron trader who knew how to do 
     these manipulations became the most valuable employee on Wall 
     Street.
       (Oil rig; stock market ticker; oil rig in ocean)
       Kroft: (Voiceover) But some of them may now be looking for 
     work. The oil bubble began to deflate early last fall when 
     Congress threatened new regulations and federal agencies 
     announced they were beginning major investigations. It 
     finally popped with the bankruptcy of Lehman Brothers and the 
     near collapse of AIG, who were both heavily invested in the 
     oil markets. With hedge funds and investment houses facing 
     margin calls, the speculators headed for the exits.
       Mr. MASTERS: From July 15th until the end of November, 
     roughly $70 billion came out of commodities futures from 
     these index funds. In fact, gasoline demand went down by 
     roughly 5 percent over that same period of time. Yet the 
     price of crude oil dropped more than $100 a barrel. It 
     dropped 75 percent.
       Kroft: How do you explain it?
       Mr. Masters: By looking at investors. That's the only way 
     you can explain it.
       Kroft: The regulatory lapses in the commodities market that 
     many believe fomented the rapid speculation in oil have still 
     not been addressed, although the incoming Obama 
     administration has promised to do so.
                                 ______