[Congressional Record (Bound Edition), Volume 153 (2007), Part 23]
[Senate]
[Pages 31533-31534]
[From the U.S. Government Publishing Office, www.gpo.gov]




                      EXCESSIVE MARKET SPECULATION

  Mr. DORGAN. Mr. President, I mention that because I want to talk 
about two areas of speculation that bother me a lot, both of which 
relate not to the financial issues of this fiscal policy coming from 
President Bush, but it relates to the issue of whether you believe 
Government has a role in proper regulation in certain areas.
  The price of a barrel of oil today is trading at $94 a barrel. It has 
been flirting with $100 a barrel. The price of oil has been going up, 
up, up in the last year. Well, it is interesting when you take a look 
at what is happening with oil prices. Take a look at supply and demand 
factors and ask yourself if the fundamentals with respect to oil supply 
and demand justify $100 a barrel of oil? The answer is no.
  Let me read to you something from a fellow, Fadel Gheit, who works 
for Oppenheimer & Sons. Here is what the energy analyst for Oppenheimer 
& Sons said last week. He said:

       There is absolutely no shortage of oil. . . . I'm 
     absolutely convinced that oil prices shouldn't be a dime 
     above $55 a barrel. . . . Oil speculators include ``the 
     largest financial institutions in the world.'' ``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.''

  Let me tell you what is happening with the price of oil. This is an 
oil analyst from Oppenheimer & Sons saying that there is no 
justification for oil being a dime over $55 a barrel. We have hedge 
funds in the futures market buying oil. We have investment banks in the 
futures market. We have investment banks building facilities to store 
oil. Now, why are investment banks building facilities to store oil? It 
is because they believe oil will be more valuable in the future. If 
they buy it and store it, then they will make money in the future.
  So instead of a futures market that works with respect to the 
fundamentals of the supply and demand of oil, we have a carnival of 
greed in the futures market, in my judgment. We have investment banks 
hip deep, we have hedge funds hip deep in this, and we have all kinds 
of things that are going on that are driving up the price of oil.
  Who are the victims? The people filling up at the gas pumps have to 
pay this price that, in my judgment, is unsupported by the fundamentals 
of supply and demand.
  What is the circumstance here? Well, the circumstance, like most 
things, is we do not have the capability to regulate very effectively.
  Let me tell you this story, if I might, about a 32-year-old trader at 
a giant hedge fund, and I did not mention that hedge funds are in these 
markets as well, in a very big way. A 32-year-old trader at a hedge 
fund named Amaranth held sway over the price the country paid for 
natural gas a year or so ago. Let me tell you what he did. He helped 
lead to the collapse of an $8 billion hedge fund named Amaranth. This 
comes from the Washington Post:

       His positions were so big that he could cause the price to 
     move in the way he wanted by buying or selling massive 
     amounts of his holdings in the last 30 minutes of trading on 
     NYMEX, a move known as ``smashing the close,'' federal 
     regulators say.
       At one point, in the summer of 2006, Mr. Hunter, the 32-
     year-old trader, controlled up to 70 percent of the natural 
     gas commodities on the New York Mercantile Exchange (NYMEX) 
     that were scheduled to supply companies and homes in November 
     of last year and more than 40 percent of contracts for the 
     entire winter season.


[[Page 31534]]


  Now, this relates to the question of a piece of legislation that is 
entitled ``Close the Enron Loophole'' Act that Senator Levin and I have 
introduced. The fact is, in these energy futures, some of them are on 
regulated exchanges, but many of them are not. The Commodity Futures 
Trading Commission does not have the capability to see exactly what is 
happening in these futures contracts and in these over-the-counter or 
unrelated areas. We need, in my judgment, to pass legislation to try to 
stop this rampant speculation of unregulated trading.
  There needs to be a futures market. A futures market is very 
important to provide liquidity. But when a futures market becomes a 
gambling hall, and you start with investment banks and hedge funds, and 
all of these activities that have very little to do with the 
fundamentals of supply and demand, then there are very serious problems 
that must be addressed.
  Now, it could likely be the case that the price of oil will come down 
in a precipitous way as well. It does not seem that way at the moment. 
But it could because, clearly, this is a speculative bubble. In my 
judgment, the price is not justified by the fundamentals of supply and 
demand. Are we going to have a tightening of supplies in the future? 
Yes, I understand that. The Chinese want to drive 100 million more cars 
on their roads in the next 15 years. They are going to build these 
roads, they are going to drive on them. Is that going to increase 
demand? Sure it is.
  Russia wants to capture more oil. I am told they would love to find 
ways to impede the opportunity of oil and energy supplies coming from 
the Caspian Sea to the West. Does that potentially impact the price of 
oil? Sure it does.
  But the fact is this: At least at the moment, with the price of oil 
on the futures market, we have a situation in which the trading, in 
many cases, is completely unregulated and not transparent. We need to 
change that. There needs to be some regulation. This administration 
does not believe that. They have never believed in regulation. We 
understand what happened with respect to the crash of Enron and the 
bilking of tens of billions of dollars from consumers on the West 
Coast. Enron, in many ways, was a criminal enterprise, and there are 
people now in jail as a result of it. The regulators sat on their 
hands, dead from the neck up, believing: No, no, no, no, this is the 
market working. It was not the market working. It was criminal 
activity, and people were hurt, a lot of them.
  With respect to the oil futures market, there needs to be effective 
regulation. I am not alleging illegal activity here. I am saying, 
however, it is not healthy to have an amount of speculation in that 
market that is far beyond anything that would be reasonable, given the 
supply and demand of oil.
  I have one additional topic I want to cover, but the majority leader 
is on the floor. I would be happy to yield to him.

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