[Congressional Record (Bound Edition), Volume 154 (2008), Part 5]
[Senate]
[Pages 7027-7029]
[From the U.S. Government Publishing Office, www.gpo.gov]




                             ENERGY PRICES

  Mr. DORGAN. Mr. President, I would like to make a comment about 
energy, the price of gasoline, and the price of oil.
  It is not surprising to people what is happening in this country. We 
see the price of oil and the price of gasoline, especially the price of 
gasoline, go up, up, and up because the price of oil has gone 
skyrocketing in recent months. I have a chart that shows what has 
happened to the price of oil.
  You can see from April of 2007 to April of 2008 the increase in the 
price of oil. One might say, there must be something in the supply and 
demand--the need for oil relative to the supply of oil--that causes 
this to happen. After all, it is the market system, isn't it? No, it is 
not the market system. There is no free market here. There is nothing 
about a free market here.
  A substantial portion of the oil is on the other side of the world, 
controlled by OPEC countries. That is not a free market. They sit in a 
room with a closed door, and the oil ministers of the OPEC countries 
then make decisions about supply and the effect on price that reflects 
their self-interest. So this is not some natural result of a market 
system.
  I made the point a couple days ago that Saudi Arabia, which has the 
largest known reserves of oil in the world, is producing 800,000 
barrels a day of oil less than they did 2 years ago. Think about that. 
The largest producer of oil in the world has cut back production by 
800,000 barrels a day. Is it surprising that the price goes up and up? 
That is one reason, isn't it? The largest supplier of oil has cut back 
production.
  What is another reason? Another reason is this administration--a 
smaller reason but nonetheless a reason--is taking oil from the Gulf of 
Mexico as royalty-in-kind oil and putting it underground. Here is what 
this administration is doing. At a time when oil is $110 to $120 a 
barrel, bouncing around like a yo-yo, this administration is taking 
62,000 barrels of oil every day and sticking it underground in what is 
called the Strategic Petroleum Reserve. The Strategic Petroleum Reserve 
is 97 percent filled. Yet when oil is at a record high, this 
administration is continuing to stick oil underground, taking it out of 
supply and putting it underground. That is an unbelievably inept policy 
because it puts upward pressure on oil prices and upward pressure on 
gas prices.
  The fact is, this isn't just any oil. This is sweet light crude which 
is a subset of oil, the most valuable subset of oil. And we have had 
testimony before the Energy Committee saying this activity does affect 
the price of oil and the price of gasoline in a negative way.
  When I say putting it in the Strategic Petroleum Reserve, this chart 
shows where they are putting it. This is what it all looks like. This 
is the SPR, the Strategic Petroleum Reserve. The oil goes underground. 
They had a choice with that oil. The choice would have been to put it 
in the marketplace and perhaps reduce some of these prices. Instead 
they stick it underground. It is a bad policy. I aim to

[[Page 7028]]

change it in our appropriations process, in the supplemental. One way 
or another, we are going to vote on this.
  Do you really think that at $115 to $120 a barrel, we ought to be 
sticking oil underground and increasing the price? I don't.
  There is another thing happening with respect to the price of oil. I 
just mentioned the Saudis cutting production back 800,000 barrels a day 
over the last 2 years. I just mentioned putting nearly 70,000 barrels 
underground every single day by this administration. That further cuts 
the amount in the supply line.
  But there is something else happening with the price of oil. An orgy 
of speculation is occurring in the futures market for oil and gas. This 
didn't used to happen. The futures market is necessary. It is necessary 
to hedge. It is necessary to provide liquidity. I understand all that. 
But the futures market has become something unbelievably speculative. 
We have hedge funds neck deep in the futures market. Do they want oil? 
They don't want any oil. They just want to bet on oil. They want to 
gamble on oil. These are people who want to buy something they will 
never get from people who never had it and make money on both sides of 
the transaction in a futures market. We have hedge funds making big 
bets on oil in the futures market. We have investment banks making big 
bets on oil. Investment banks didn't used to be engaged in the futures 
market, but they are now.
  In addition to that, in addition to the investment banks working in 
the futures market, we have investment banks that are actually buying 
oil storage for the purpose of taking oil off the market and putting it 
in storage until oil is more valuable later.
  That is what is happening. We have not previously had that occur. So 
we have this binge of speculation in the futures market that has 
nothing at all to do with the supply and demand of oil. Why is this 
happening? At least in part it is happening because in the stock 
market. If you want to buy stock on margins, you have to pay 50 percent 
of the margin. You have to come up with half the money. If you want to 
buy stock on the margin, come up with half the money. If you want to 
buy oil on margin in the futures market, all you need to come up with 
is 5 to 7 percent. If you want to control 100 million dollars' worth of 
oil contracts, $5,000 to $7,000 will do it for you.
  It is almost unbelievable what has happened with respect to the 
speculation in these futures markets. My belief is, we should change 
the margin requirements on the futures markets. When there is excess 
speculation, it injures this country's economy. It damages the American 
economy. This excess speculation has been pushing up oil prices in a 
very significant way.
  Yes, there is a combination of things that are happening. One is, as 
I said, the Saudis cut back production by 800,000 barrels a day. Our 
Government, the Department of Energy, is sticking nearly 70,000 barrels 
a day underground of sweet, light crude. But it is also the case that a 
significant part of this, in my judgment, comes from a binge of 
speculation on the futures markets. I believe we should increase the 
margin requirement at least to 25 percent.
  I want to go through a couple of observations.
  On April 1 of this year, Stephen Simon, a senior vice president of 
ExxonMobil testified that:

       The price of oil should be about $50-$55 per barrel.

  Oh, really? Then why isn't it? This is from an oil expert saying: I 
think the price of oil should be around $50 or $55 a barrel.
  Well, this company is making plenty of money off of the current price 
of oil. The price is double. That company must grin all the way to the 
bank. That company, the Saudis, the OPEC countries, and the other large 
oil companies, they must be smiling all the way to the bank. But Mr. 
Simon says the price of oil should be about $50 or $55 a barrel.
  Mr. Clarence Cazalot, Jr., the CEO of Marathon Oil said:

       $100 oil isn't justified by the physical demand in the 
     market.

  That was during a question-and-answer period with reporters. He said 
a more reasonable range for crude oil prices was between $55 and $60 a 
barrel. Now, understand what he said. He said: ``$100 [a barrel] oil 
isn't justified by the physical demand in the market.'' He is the CEO 
of one of the large oil companies in the country.
  This price is not justified by supply-demand.
  Well, we are told the market system works; supply-demand determines 
the market price. I used to teach a little economics in college, and 
you teach supply-demand curves. You also talk about a free market, 
there is no free market here, of course.
  As I started to say earlier, we have the OPEC countries, that is a 
cartel. We have the big oil companies--all with two names now. 
ExxonMobil, ConocoPhillips--they all have two names because they found 
they like each other and they wanted to marry up. So they merged. So 
they have much more muscle in the marketplace. Then we have the futures 
markets which have become a binge of speculation.
  A New Jersey Star Ledger article from January of this year said:

       Experts, including the former head of Exxon Mobil, say 
     financial speculation in the energy markets has grown so much 
     over the last 30 years that it now adds 20 to 30 percent or 
     more to the price of a barrel of oil.

  Fadel Gheit is a man who came to testify before the Senate Energy 
Committee. Fadel Gheit is an energy analyst for Oppenheimer & Co. I 
think he has been with them for 25 or 30 years. He knows this business. 
Here is what 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.''

  He said:

       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.

  Now, here is a picture of NYMEX, the New York Mercantile Exchange, 
where you can trade commodities such as oil. You will see the trading 
pits. A lot of people have made a lot of money in those trading pits. 
In fact, I have a Wall Street Journal story that describes this that is 
titled: ``Trader Hits Jack Pot in Oil, as Commodity Boom Roars On.'' 
This describes Mr. Andrew Hall. Mr. Andrew Hall has earned a lot of 
money, about $250 million--a quarter of a billion dollars. It says:

       The commodities market's historic surge is generating huge 
     paydays on Wall Street. One of the biggest beneficiaries has 
     been Andrew Hall, an enigmatic British-born trader who, five 
     years ago, anticipated an important shift in the way the 
     world valued oil--and bet big.

  The point of this is, here is a man who made a lot of money. I do not 
begrudge a man making a lot of money. But he made a lot of money by 
betting. He bet big. Isn't that interesting? As I said before, the 
notion of buying something you will never get from somebody who never 
had it--that is the futures market. It provides liquidity, yes. But 
when it goes way beyond liquidity and encompasses a binge of 
speculation, that is damaging and harmful to this country, then it 
seems to me it is not anything about the market system.
  Anybody who has studied history and knows economics knows we have 
seen binges of speculation before. Go back four or five centuries, and 
you will read about a tulip bulb--one tulip bulb being sold for $25,000 
because there was a speculative binge which, in the rearview mirror, 
looks completely irrational with respect to the price of tulip bulbs.
  Well, we have seen over the centuries many of these binges of 
speculation. We now see it in the futures market, in my judgment, in 
part because the margin requirement is so unbelievably low: 5 to 7 
percent. We now see binges of speculation that are driving up the price 
of oil and causing the American consumers an enormous amount of lost 
income and great difficulty.
  There is a group of truckers who have come to Washington, DC, today. 
I was talking to somebody who was a little disadvantaged--He said he 
got slowed down on some travel up Constitution Avenue. I said: Well, 
that is

[[Page 7029]]

an inconvenience, but think of what truckers are going through right 
now--a whole lot more than inconvenience. When it costs a substantial 
amount of money--one trucker talked about that it cost $1,000 to fill 
his truck with fuel. That is a lot more than an inconvenience.
  I talked a week or two ago about how I think there are three 
airlines--perhaps now four--that have announced bankruptcy as a result 
of fuel prices.
  We have working folks who will drive up to the gas pump tonight to 
try to fill their tank, trying to figure out how to get the money. 
Where does the money come from to pay for the gas?
  At the same time, we have people who are engaged on the futures 
market and who are going to the bank with the largest profits ever 
seen.
  I think we have a right to ask in this country--when we have a market 
that is not a free market; when we have a perverted market, first by 
OPEC, a cartel, second by excessive speculation on futures markets--
don't we have a responsibility to do something? I think the answer to 
that is clearly yes.
  So my hope is we will, first, decide to support an amendment that I 
will offer to the supplemental that immediately shuts down placing 
nearly 70,000 barrels of oil every single day underground at a time 
when we need that in the supply pipeline. Why should we allow the 
Department of Energy to be taking oil at the highest possible price and 
sticking it underground? We can fix this, and we can fix it soon, 
within a matter of weeks, if we had the will to do it.
  Second, while we have not previously legislated on the issue of a 
margin requirement for engaging in speculation on the commodities 
exchanges, I think if the Commodity Futures Trading Commission or other 
entities will not do it, I think Congress should. After all, Congress 
created the mechanism by which these exchanges exist. We created the 
referee for the exchanges, and if it does not work, then we have a 
responsibility to fix it.
  I recall--and it does not relate to the oil companies--but I chaired 
the hearings on Enron over in the Commerce Committee. I had the CEO of 
Enron come and testify in front of me and take the fifth amendment. Ken 
Lay came and said he could not speak and took the fifth amendment. But 
when he did speak later he said he did not know anything about what was 
going on.
  The fact is, there was unbelievable speculation going on on the west 
coast on wholesale electricity prices and the manipulation of markets, 
and it cost tens of billions of dollars to west coast consumers who 
were bilked out of that money.
  When the system does not work, when regulatory authorities are not 
willing to regulate, when those who are supposed to be referees in this 
free market system are not making sure a perverted system is changed to 
make sure it works, then we have a responsibility in Congress to deal 
with it and to respond to it.
  So I believe very strongly there are a few things we can do. First, 
stop SPR oil from going underground; second, find ways to increase the 
margin requirement on the futures market. There are several other 
approaches we can use as well.
  But I would conclude by saying this: I am just a little tired of 
people talking about the free market. There is no free market here. I 
want oil companies to do well. I want them to find more oil. I was one 
of four people in this Chamber who led the fight--successfully, I might 
add--to open Lease 181 in the Gulf of Mexico where there is substantial 
oil and gas reserves. I believe we should produce more, and I witnessed 
that by being one of four Members of the Senate who helped get that 
done.
  We should conserve more. We should provide much greater efficiency 
with all the things we use. We should provide much greater effort to 
renewable energy. We should do all of those things. But even as we do 
them, in my judgment, we have a responsibility to address this issue of 
oil and oil pricing. Even the oil companies say there is no 
justification, given the current supply and demand, for the price of 
oil to be above $60, $65 a barrel. We have heard it in the statements 
of people who run our major oil companies.
  The rest of it is going up to the hedge funds and the investment 
banks and others who are making massive amounts of money at the expense 
of truckers, at the expense of airlines, at the expense of the ordinary 
American drivers who are trying to figure out: How on Earth do I pay 
this bill?, and stopping excessive speculation.
  We need to fix this, and the sooner the better because I believe it 
is damaging our economy.
  Mr. President, I yield the floor and suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll of the Senate.
  The assistant legislative clerk proceeded to call the roll.
  Mr. BAUCUS. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. BAUCUS. Mr. President, I ask unanimous consent that all the time 
remaining for morning business be yielded back.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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