Whither speculation?
July 25, 2008 by chrisgraham
Special Commentary by Chris Graham
freepress@ntelos.net
I’m trying to make sense of why Senate Republicans have filibustered legislation that would rein in market speculators who have helped drive up the price of oil well beyond natural supply-and-demand forces.
They do understand that it’s an election year, right? And that taking the side of Big Oil in this $4-a-gallon era is probably not among the smarter political moves?
“When this Congress voted to go into Iraq in 2002, oil was $24 a barrel. It was recently above $145 a barrel. No one would try to claim that demand has gone up six times in the last six years or that supply has been reduced to that extent. The oil speculators are out of control, in a market that was not designed for large-scale speculation. We could have fixed that with this legislation,” Sen. Jim Webb, D-Va., said today.
Some analysts are placing the impact of unregulated offshore speculation at 30 percent to 50 percent of the price that we’re paying at the pump. AAA has the average price of a gallon of regular unleaded at $4.01 today, meaning anywhere from $1.20 to $2 a gallon could come off the top if loopholes in the federal law could be closed. I don’t know about you, but to me paying $2.80 or even $2 a gallon makes me feel a lot better than paying $4.01 a gallon.
And why did Senate Republicans block the measure from getting a vote? Would you believe that it was because they wanted to advance a measure expanding domestic drilling that the Bush administration’s own Department of Energy has said wouldn’t have an impact on gas prices in the U.S. until 2030?
“We are not leaving, we are not giving up. We can tear down these walls that prohibit domestic energy production here in America,” Texas Republican John Cornyn said. Which is interesting, in Webb’s view, since “even many of the top oil company executives agree that oil market supply and demand are the same as when oil was $60 a barrel. In fact, Exxon Mobil’s senior vice president recently said that the price of oil should be about $50 to $55 a barrel,” Webb said.
Oil was being traded at the rate of $145 a barrel last week, but closed yesterday at $125.49 a barrel. That’s five times what it was when the U.S. invaded Iraq in 2002, fueling the speculative bubble made possible by a loophole pushed through the Republican Congress in 2000 in the waning days of the Clinton administration in the period between the controversial 2000 presidential election and the inauguration of President Bush that has been called the “Enron loophole” because it ended up benefitting the now-defunct energy trader.
“This legislation was designed as a necessary first step to correct a practice that has been both costly and unfair to American consumers, before we begin to address these other issues,” said Webb, who hopes to see the Senate reconsider the oil-speculation issue, and soon. “We should not let this issue slide off the legislative calendar simply because of the recalcitrance of the other side. It is too important to American consumers,” Webb said.
Chris, it is a supply and demand issue and the speculators are not the big problem. If Congress would pass legislation allowing drilling on the Continental Shelf and ANWR, it could change the price of oil without a even a single drill going into the ground. Why? because the speculators are gambling on the future and the future says continued higher demand and continued weaker supply. That’s a recipe for wild upward pressure on the price of oil. Congress needs to show a willingness to cut through red-tape and allow oil companies to drill where they want. They need to send the message that environmentalist wackos are not going to control energy policy in this country whether its oil, nuclear, wind, solar, etc.
Guru, you have to know better than that. Futures trading and the weak dollar have nothing to do with oil drills, and everything to do with our fuel issue. It’s nice to think that the speculators would be motivated to drive prices downward by telling them that we’re going to begin to get more domestically-produced oil around 2017, as the Department of Energy suggests would be the case if we lifted the current restrictions that are in place, but it is just as likely that they will respond to that news by keeping their hedges on future oil-trading activity where they are now. The DOE is estimating that any downward pressure on prices at the pump from domestic drilling would not be felt until 2030. Even if they’re or even 10 years off, and it’s 2020, that’s 12 years before we see any impact at the pump from domestic drilling. I would suggest that a 10, 20, or 30 percent drop in prices due to curbs on speculation that would be much more immediate in nature is a higher priority.
Chris,
I have heard many different estimates from many different sources about how long it would take to get benefit from drilling. I don’t know which ones to believe. Even if it takes 10 years, we NEED to drill. There are tons of things we do today to protect against what will happen 10 years or longer down the road. If people 10 years ago had worried about oil prices today then perhaps prices wouldn’t be this high. A lot of invironmental laws were created, not so much for today, but for our children, and our grandchildren. I do not believe there is one answer to the problem of oil prices. Perhaps reining in speculators is something we need to do, I don’t understand that part of it enough to know. Drilling is the easier one for me to grasp. Maybe we need to do both. We could to do lots of things… Many of them may take years. I also have a hard time understanding why Nancy Pelosi is not allowing a vote on drilling supposed due to the fact that she is afraid of defection in the ranks. There are many things we should be doing, some for now and some for 10 years down the road.
I don’t disagree on the need to drill, actually. I just think it should be a first priority to deal with the speculation issue, because the benefits there are going to be more immediate.
If I could have it my way, we’d do something on closing the loopholes that have been exploited by the speculators first, then we open up the drilling issue second, then third engage in a substantive bipartisan discussion to lay out a road map for our energy future that includes drilling for domestic sources of oil and commitments through tax incentives and other taxpayer investment in the development of alternative-energy sources.
But speculation has to be a first priority. We could have benefit from this in the here and now. Drilling is 10, 15, 20 years or more down the road in terms of benefit. Let’s get to that after we do the piece on curbing speculation.
[...] also talked about congressional inaction on high oil and gas prices and Chris’ story in the AFP this week on the renaissance of U.S.-based [...]