Washington, 24 May 2011: Reuters
The U.S. Congress should take steps to limit speculation in oil markets, which has boosted prices as much as 30 percent, a new report from the Democratic staff of a House of Representatives oversight committee said on Monday.
The report, based on data and comments from industry experts, cites comments from Exxon Mobil CEO Rex Tillerson and others that oil should be around $60-$70 a barrel based on the fundamentals of supply and demand.
“Addressing excessive speculation offers the single most significant opportunity to reduce the price of (gasoline) for American consumers,” according to the report, prepared for Democrats on the House Committee on Oversight and Government Reform, which has broad oversight of government policies.
The staff report, which also backs other positions championed by minority Democrats including eliminating oil company subsidies, is unlikely to gain much traction in the Republican-controlled House. It argues that Republicans proposals such as steps to boost domestic offshore drilling, would not achieve the goal of reining in $4 gasoline prices.
With national elections next year, members of Congress have been arguing about the best way to combat high gasoline prices, a top concern of voters. While Republicans have focused on increasing domestic oil production, many Democrats have called for cracking down on market manipulation.
“With gas prices skyrocketing to more than $4 per gallon, it is time to stop focusing on advancing the priorities and profits of oil companies and instead find ways to give American consumers relief at the pump,” said Rep. Elijah Cummings, Maryland Democrat, the ranking committee member.
The report says increasing domestic drilling would “impact prices by only about 1 percent.” It cites data from the U.S. Energy Information Administration, saying drilling on the Atlantic and Pacific coasts of the United States would have little impact on global prices by 2020.
The Oversight Committee, chaired by Republican Congressman Darrell Issa, is set hold a hearing on Tuesday on factors affecting gasoline prices in the world’s largest oil consumer.
RECORD SPECULATION
“In order to make the most significant impact on lowering gas prices, the committee’s primary focus should be on countering the growing impact of excessive speculation, rather than pursuing the oil industry’s priorities of increasing domestic drilling or repealing safety measures put in place after the devastating BP oil spill,” the report said.
Big hedge funds and other speculators had increased their bets on higher prices to an all-time record level at the end of April, according to data from the U.S. Commodity Futures Trading Commission.
Data shows money managers had accumulated contracts equivalent to around 350 million barrels of U.S. crude oil, or four days of global consumption, with a notional value of more than $38.5 billion.
U.S. benchmark crude, known as WTI or West Texas Intermediate , hit a post-2008 high of $114.83 on May 2, before tumbling more than 10 percent in one session three days later.
Many experts said the steep decline on May 5 came as funds liquidated long positions, demonstrating the outsized impact investment flows have on commodity prices.
So far in May, speculative bets on higher oil prices have been reduced by around a quarter, but remain at a level never seen before the start of this year. WTI crude prices have fallen by around 15 percent in May, to trade around $97.50 on Monday. High gasoline prices have cut U.S. President Barack Obama’s approval ratings. He has set up a working group of federal agencies to investigate possible market fraud.
More than a dozen senators, including one Republican, have called on the CFTC to unveil a plan by Monday to impose position limits for speculators in energy futures markets. CFTC chairman Gary Gensler fell short of that goal. In a letter late on Monday to the senators, he said that commission staff will “shortly” complete its review of almost 12,000 comments on the agency’s proposal from January to put position limits on 28 commodities, including crude oil.
“The commission will begin considering a final rulemaking after staff can analyze, summarize and consider comments and after the commissioners are able to discuss the comments and provide feedback to staff,” the letter said.
Gensler did not say in the letter, which was also written on behalf of commissioners Michael Dunn and Scott O’Malia, when a final rule might be issued imposing position limits. Commissioners Jill Sommers and Bart Chilton did not sign on to the letter.
Chilton, an outspoken proponent of position limits, said in a separate letter to the senators late last week that he agreed “wholeheartedly” with their position. “I believe we are fully capable of enacting a position limits rule that does not harm markets, or harm legitimate business activity,” Chilton said.
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