[Congressional Record (Bound Edition), Volume 154 (2008), Part 13]
[Senate]
[Pages 18085-18087]
[From the U.S. Government Publishing Office, www.gpo.gov]




                         ENERGY AND SPECULATION

  Mr. DORGAN. Mr. President, since the Congress left in early August, 
much more has been written and much more explored with respect to the 
role of speculation in the oil futures market and what it has done to 
this country. The price of oil has come down some, which is good--from 
$147 a barrel down to $106 a barrel yesterday. It is still very high. 
Clearly, the role of speculators in running this price up in a year 
needs more investigation.
  There are some who say: Well, there is no speculation. We have people 
who

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come to the floor of the Senate and say there is no speculation here. 
Well, of course, what has happened from July to July, last year to this 
year, is the price of oil and gasoline doubled in this country. And 
there is nothing that has happened with respect to the supply and 
demand for oil and gas that justifies the doubling of the price.
  A Washington Post story by David Cho says: Financial firms 
speculating for their clients or for themselves account for about 81 
percent of all the oil contracts on NYMEX. A few speculators are 
dominating the vast market for oil trading.
  Wall Street Journal: Speculator in oil market is key player in real 
sector.
  We are now beginning to understand what has been happening in that 
market. The Commodity Futures Trading Commission, which is supposed to 
be the regulatory body on behalf of the public interest, has been 
steadfastly proclaiming now for over a year that there is no 
speculation here, or at least speculation is minimal. Nothing is 
happening that is untoward. Don't worry, be happy. In my judgment, this 
is the work of a regulatory body that has decided it doesn't wish to 
regulate. Regulators are supposed to be referees. Let the market work, 
but when there is a foul, call the foul. The Commodity Futures Trading 
Commission not only doesn't wear a striped shirt, it doesn't have a 
whistle and it is not even at the game. It isn't even interested. They 
say: Well, there is no problem. Yet the evidence is all around us that 
there is a problem.
  The investigative reports by the Washington Post and the Wall Street 
Journal confirm that a vast majority of the trading in the oil futures 
market is done by profiteering speculators with the market power to 
drive up oil and gas prices. These aren't people who want to ever have 
any oil. They don't want to buy a quart of oil or a 30-gallon drum of 
oil. All they want to do is trade paper and make money on oil futures 
contracts. As a result, I believe intense speculation has driven up the 
price of oil, double in a year, in a manner that was not at all 
justified.
  In July, the Commodity Futures Trading Commission reclassified a very 
large trading firm from commercial to non-commercial. This fact was 
hidden deep inside the bowels of the Commodity Futures Trading 
Commission Web site. But for a couple of enterprising reporters, the 
American public would still be unaware of that. They reclassified a 
very large trader. My understanding is that trader, I believe, had 
somewhere in the neighborhood of 300 million barrels of oil in its 
contracts. The same trader on June 6 reportedly held oil futures 
contracts that were triple the amount of oil that consumers in this 
country use every day. By the end of July, 4 swaps dealers held one-
third of the speculative oil futures contracts traded on NYMEX.
  This information confirms what many of us already knew--that the CFTC 
was dead wrong--has been repeatedly dead wrong--when it was telling 
Congress this past year that supply and demand, not excess speculation 
in the oil futures market, was driving up oil and gasoline prices to 
record highs.
  Now, in light of this, I believe Congress has a responsibility to 
address speculation. I know there are various groups forming around 
here to bring forth certain kinds of energy proposals, and I commend 
them all. I think they make a lot of sense. I think we ought to do all 
of or most of that which is being discussed--drill more, conserve more, 
produce much more in renewables, and address speculation. But there are 
some who are putting together proposals that decidedly leave out the 
issue of speculation. They leave it out. Why? Because they are getting 
pressure from the same special interests that have been speculating. 
The same big interests that helped drive up the price of oil and gas 
double in a year have prevailed upon some in this Congress not to touch 
them. Don't do anything.
  We have a responsibility when we consider energy policy next week and 
beyond to talk about position limits that would wring the excess 
speculation out of these markets. The oil futures market is an 
important market. It is important for legitimate hedging of a physical 
product between producers and consumers. I fully understand that. But 
it is a broken market. It has been broken by excess, relentless 
speculation by those who are not hedging risk of a physical product. 
And we have a responsibility, I believe, to understand that the 
regulators, the Commodity Futures Trading Commission, and the 
assurances by these regulators have been discredited.
  I think the conclusions trumpeted by the head of the CFTC, Mr. 
Lukken, that the wild increases in energy prices we have seen this past 
year are solely based on supply and demand is not the case. A study by 
an MIT economist this summer rebuts the claims of the CFTC that it is 
world demand, including demand by China and India, driving up prices. 
That is not true.
  Since 2005, the rates of growth in world demand and Chinese demand 
have dropped some. Richard Eckaus, MIT Professor of Economics Emeritus, 
found in his study, which was published in June of this year, that the 
growth rate for world demand is less than 2 percent annually. He 
suggests the assertion by some that the drop in value of the U.S. 
dollar has played a big role in skyrocketing price is simply wrong. I 
believe the drop in the value of the dollar has played a role, but it 
is not a big role, and the MIT study demonstrates that.
  Another study to be released this week looks at the flow of money 
into and out of the S&P Goldman Sachs commodity index in recent months, 
and that study has interesting conclusions. It finds that WTI crude oil 
future prices have risen and fallen almost directly related to the flow 
of investment money in and out of the energy futures market. When 
institutional investors poured more than $60 billion into the 
commodities market in January to May, the WTI price, West Texas 
Intermediate crude price, increased by $33 a barrel. When $39 billion 
was taken out by these investors, starting on July 15 through the end 
of August, the price began to drop. When speculators invest, the WTI 
price goes up; when they take money out, the price goes down.
  One of the interesting things I wish to understand is where are the 
substantial losses from these speculators? Mr. Lukken, the head of the 
CFTC, suggests speculation isn't happening, against all the evidence 
that has now been published. But we know there is a dramatic amount of 
speculation. This chart shows the oil futures market taken over by 
speculators. In 2000, speculators accounted for just thirty-seven 
percent of the trades in the oil futures market, and now we are told it 
is 81 percent today 2008. The CFTC still says oil excess speculation 
isn't a problem.
  My point this morning is simple: We should have, and will have, a 
debate on energy. The debate can be about yesterday or tomorrow. Those 
who say you can drill your way out of this, well, I think we ought to 
drill. I am all for drilling. But I think that is yesterday forever. If 
every 10 or 15 or 20 years we have folks around here in their loafers 
and suspenders bloviating about where we drill next, there is not much 
of a future in that, in my judgment.
  What we need to do is change the whole game on energy and make us far 
less dependent on foreign sources of energy. Why should this country, 
with the strongest and best economy in the world, have its economic 
opportunity in the future dependent on whether Saudi Arabia, Kuwait, 
Iraq, Venezuela, or others will give us, or sell us oil? Sixty-five 
percent of the oil we need to run this economy comes from off our 
shores. That makes us unbelievably dependent. So, yes, let's drill 
here, but we are not going to drill our way out of this. T. Boone 
Pickens, who has been in the oil business for 40 years, says we are not 
going to drill our way out of this problem. I agree with that. But let 
me end where I started. He talks about solar and wind. I think we ought 
to do all those things. I think solar and wind have the capability to 
provide a substantial amount of additional energy for this country. In 
order to do that we have to continue with the tax incentives for solar 
and wind. But we have had eight votes on it, and eight times

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the other side has blocked us in providing the incentives to provide 
dramatic new approaches for renewable energy. It makes no sense to me.
  We said in 1916 that we want you to go looking for oil, and in fact 
we want you to look for oil and gas sufficiently that we will give you 
big tax breaks as you look and find oil and gas. So we put tax 
incentives in place. I wasn't here, of course, but we put tax policies 
in place nearly a century ago to say look for oil and gas and we will 
give you big tax breaks. Now, let's look at what we did for renewable 
energy. We put in place in 1992, 16 years ago, tax incentives for wind 
and solar and other renewable energy. They were short-term, fairly 
shallow tax incentives. They have been extended, short term, five 
times, and they have been allowed to expire three times. It is a 
pathetic response.
  Even now, the current incentives die at the end of this year. They 
expire. We tried eight times to renew them and so far we have been 
blocked. Why? Because some of our colleagues are upset that one of the 
ways we pay for those is to shut down the tax scam being used by hedge 
fund managers to move their income through tax haven countries in 
something called deferred compensation to avoid paying even the minimal 
compensation to the Federal Government in taxes that they now pay. They 
get to pay already some of the lowest tax rates in America, at 15 
percent, which I think makes no sense. But even so, many of them are 
trying to avoid U.S. taxes by using deferred compensation techniques to 
run it through offshore tax havens.
  Our colleagues on the other side are so protective of that and 
believe, apparently, they should be able to continue doing that. They 
appear willing to shut down our ability to extend the tax credits for 
renewable energy in the long term for this country.
  The plea for a little cooperation runs both ways around here. When I 
took the floor this morning, we had several colleagues talking about an 
interest in cooperation. I think there ought to be a lot of cooperation 
on everything. Let's start first with something that is going to shut 
down on December 31 of this year, and that is the incentives to 
continue and be more aggressive on developing renewable, homegrown 
energy, which reduces our need for foreign oil. Let us at least start 
to do that.
  Mr. President, I believe my colleague is here to take the remaining 
portion of our time, so let me at this point yield the floor.
  The PRESIDING OFFICER. The Senator from California.
  Mrs. BOXER. Mr. President, as I understand it, we are about to run 
out of time for morning business; is that correct?
  The PRESIDING OFFICER. We have 6 minutes 40 seconds.
  Mrs. BOXER. Mr. President, I ask unanimous consent that I be allowed 
to speak as in morning business until 11:15 a.m.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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