Oil Speculation; response from RI Sen. Jack Reed

After learning about the negative affects oil speculation has on the U.S. economy (and my wallet), I sent an email to my local congressmen last week urging them to take the steps to lower oil prices by enforcing tighter controls over oil speculation. Rhode Island Senator Jack Reed's office sent an email response today.

Here it is, in summary;

Dear Ms. Botelho:

Thank you for contacting me regarding the high prices of gasoline and home heating oil. I appreciate learning of your concerns on this important matter.

Over the past six years the average prices of gas and home heating oil have increased over 125%, and prices are projected to continue rising. I recognize the burden that these costs and uncertainties place on families, and I believe that a number of steps must be taken to improve this situation in both the short and long term.

...Experts estimate that over 25% of the cost of a barrel of oil can be attributed to speculation. There are actions that can and should be taken immediately to ensure that the prices Americans are paying at the pump are not the result of price gouging or unlawful manipulation of energy markets. As such, I am a cosponsor of S. 2058, the Close the Enron Loophole Act.

The “Enron Loophole” provision was inserted into the Commodity Futures Modernization Act conference report in 2000, making large energy commodities traders exempt from government oversight.

Since 2000, these unregulated electronic energy markets have exploded in size. Without federal oversight, billions of dollars in energy trades have shifted from traditional trading platforms such as NYMEX to unregulated trading environments.

I am also an original cosponsor of two other bills that will place additional scrutiny on and increase transparency of trading done in energy commodities markets. S. 3130, the Increasing Transparency and Accountability in Oil Prices Act, which was introduced by Senator Durbin on June 12, 2008, would improve the ability of the Commodity Futures Trading Commission (CFTC) to collect and monitor data to identify the forces that are responsible for the rapid increases in the price of oil.

This legislation would authorize an increase in CFTC personnel, strengthen its access to oil market data, and close the London loophole, which allows financial traders to evade speculation limits and reporting requirements by routing transactions through off-shore markets. After its introduction, S. 3130 was referred to the Committee on Agriculture, Nutrition, and Forestry where it is pending further consideration.

Sincerely,

Jack Reed
United States Senator

On May 5, 2008, Reed and Senator Levin also sent a letter to the President calling on him to form a top-level inter-agency task force to investigate the role that unlawful manipulative practices may be playing in the volatility of energy markets.

It will be interesting to see if Bush does anything to stop excessive oil speculation. I am not holding my breath.

In the letter, Reed also detailed a number of other bills he supported that would help lower our dependence on oil, like H.R. 6, the Renewable Fuels, Consumer Protection, and Energy Efficiency Act, which was signed into law on December 19, 2007. This law will raise the Corporate Average Fuel Economy (CAFÉ) standards of vehicles to 35 miles per gallon in cars and light trucks by 2020 and increases investment into the research and development of advanced biofuels (those that are not derived from corn starch). By the year 2020, the law will reduce U.S. oil dependence by about 1.3 million barrels per day and, in that year alone, will save consumers $26 billion and reduce global warming emissions by over 200 million metric tons, according to Reed.

Let's hope so.