Oil Market Speculation
Floor Speech
OIL MARKET SPECULATION -- (Senate - April 24, 2008)
Mr. DORGAN. Mr. President, the final matter I want to talk about today is this issue of the price of oil and the price of gasoline and excessive speculation. There has been some discussion today about this, and I want to make this point.
We have seen a dramatic runup in the price of oil and, therefore, the price of gasoline. There is no justification with respect to the fundamentals of oil and supply and demand for that. There is no justification for it at all, but something has changed in this country. What has changed is the futures market has become an orgy of speculation.
Let me quote a man named Mr. Fadel Gheit, a top analyst from Oppenheimer and Co. He has been in this business for 30 years. He said this a couple of months ago.
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. I call it the world's largest gambling hall. It's open 24/7. It's totally unregulated. This is like a highway with no cops and no speed limit and everybody's going 120 miles per hour.''
This is happening in the futures market. You need a futures market to hedge. You need it for liquidity. I understand that. What has happened to the futures market is pretty bizarre. We now see on the futures market 20 times the amount of oil bought and sold every day than is used every day. Twenty times more is bought and sold than is used. For the first time, we see hedge funds up to their neck in the futures market. Is it because hedge funds love oil? No, they don't know anything about oil. Do they want oil delivered to their offices? Do they want oil delivered to their homes? No. They never want to own any oil. They want to buy things they will never get from people who never had it. That is the way the futures market works. These people are speculating. Hedge funds are neck deep speculating in oil futures, and for the first time investment banks have joined them. So you now have big investment banks and big hedge funds with a presence in the futures market like never before. They have all these commodity corners in their company now, and they are hiring more, and they are speculating at an unbelievable rate.
I am told, and I have read, that investment banks for the first time are
even buying oil storage capability to buy oil and take it off the market. Why? To wait until it increases. So now we have oil upwards to $120 a barrel because we have so much rampant speculation or outright gambling in these markets.
What does that mean for the folks driving a Chevrolet down the road, getting low on gas and trying to figure out how to get to a gas pump, and how to pay the bill when they get there? Well, the folks in the hedge funds, these folks in the investment banks on these commodity markets that are engaged in the 24/7 casinos, are going to the bank. Man, they are going to the bank big time. I am talking billions and billions of dollars. It is pretty unbelievable. When you have a person drive up to the gas pump and fill that car with gas, a portion of that money now goes to this carnival of speculation in the futures market to reward the speculators. A portion of it, of course, goes to the OPEC cartel too. These are folks who sit around in a closed room with a locked door and make decisions about price and about production.
I might add, while I am at it, that Saudi Arabia, by the way, has 800,000 barrels a day less production on the market than they did 2 years ago--800,000 barrels a day, every day. That means a lot in terms of what might happen in that market.
So we have a lot of things going on here. What should we do about it? Well, in addition to all of that, the Bush administration is deciding they want to stick, and they are sticking, 60,000 to 70,000 barrels of oil underground every single day in something called the Strategic Petroleum Reserve. We have an SPR to save for a national emergency. Well, they are buying oil at $118 a barrel coming off the Gulf of Mexico as a royalty in kind transfers. They are taking $118-a-barrel oil and putting it in the ground, 60,000 to 70,000 barrels a day.
With oil at record highs, it is Byzantine to see this administration saying we have to do more to fill the SPR. This is at a time when the Strategic Reserve is 97 percent filled. So they take oil out of the supply, which puts upward pressure on oil and gas.
When the supplemental appropriations bill comes to the floor of the Senate, I intend to offer that amendment as well, to stop putting oil underground in SPR when oil is above $75 a barrel. I mean, this doesn't take a reservoir of common sense. It just takes a few grains of common sense from somebody who might actually help to fix this problem.
What I also want to do is to increase the margin requirements on the exchange. If you buy stock on margin, you pay a 50-percent margin requirement to buy stock. If you want to control oil by going into the futures market for oil, you pay 5 to 7 percent. You pay a 50-percent margin for stock, but 5 to 7 percent for oil. If you want to control $100,000 worth of oil, it will cost you $5,000 to $7,000. That doesn't make any sense.
That encourages speculation. That encourages the speculation that pushes the runup of these prices. I believe the margin requirement ought to be at least 25 percent at this point, during this period of aggressive speculation. So I am putting together a piece of legislation on that as well.
You know, I want this country to develop an energy policy that makes us much less dependent on foreign sources of oil, engages in much more conservation, and much more efficiency. We should produce more. I am one of the four Senators who helped pass the legislation finally that opened up Lease 181 in the Gulf of Mexico in 2006. So I believe in additional production. I believe we ought to conserve more. I believe we need more efficiency, and I believe we need to pay much more attention to renewable energy.
All those things are important. All of them are important. But right at the moment we have a circumstance where we have an administration sticking oil under the ground at the wrong time, which puts upward pressure on oil and gas. We also have hedge funds and investment banks hip deep in the futures market speculating and making billions of dollars on speculating. At the same time, they are driving up the price of oil and gas for American families and doing great damage to this country's economy.
It is not just the family, and it is not just the business. It is not just the truckers and not just the airlines that are hurt. This country is experiencing significant economic damage as a result of the runup in these prices. I think there are reasons for us to come to the floor on an urgent basis and take obvious steps to deal with it. I have mentioned several, and there are more. But I only want to make the point that this is not some passing fancy that is going to be a magnet for a lot of discussion. This is a very serious, real problem that is doing significant damage to this country's economy.
There is a lot to do next week and the week after, and I will be introducing some additional legislation. I will be anxiously awaiting the appropriations supplemental legislation. When the emergency supplemental appropriations bill comes to this floor, either in the Appropriations Committee or on this floor, we must be given the opportunity--and will be given the opportunity--to offer the kind of amendments I have suggested. This will include an amendment that stops the putting of oil underground in the SPR at a time when oil is priced at $118 a barrel. This is just one of the obvious things we can do to stop penalizing American consumers and damaging this country's economy.
Mr. President, with that, I yield the floor, and I suggest the absence of a quorum.
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