ENERGY PRICES -- (Senate - May 22, 2008)
Ms. CANTWELL. Madam President, I rise, similar to many of my colleagues this afternoon, to talk about the high price of gasoline and what we need to do as we are leaving Washington and going home for Memorial Day recess to hear, I am sure, from many constituents that they are very concerned about this crisis of paying an ever-increasing amount for gasoline.
Today, I am sure, the market is going to set another record for the number of days gas prices continue to go up, and our constituents want to see relief. I know many of my colleagues have come out here and talked about new supply. I certainly feel one of the biggest priorities the Senate has is to pass a tax credit bill for renewable energy so we can get predictability in the market and continue to get new energy incentives in place. That will take pressure off some of these other supply issues. But many of my colleagues keep talking about the United States looking for more oil or things the United States can do to get into the oil game in a more robust way.
This chart shows it pretty clearly. The United States has 2 percent of the world's oil reserves--2 percent. These are all the other countries with which my colleagues are familiar: Saudi Arabia at 20 percent of the world's oil reserves; Iraq and Iran, another 18 percent. These are the big players.
The point is, the United States is not going to dramatically impact the price of oil by what we do with only 2 percent of the world's oil reserve. So if we want a solution, we are not going to get a solution out of what the United States can do in continuing to be addicted to oil.
It is very important to also note that in the past, we have had many a conversation about this problem and what is the high price of gasoline. We had the same debate when it was the high price of electricity. No one wanted to hear about any other issue than the fact that it was just a supply-and-demand problem. In fact, the Vice President in 2001 said, when talking about the electricity crisis, when prices were going through the roof:
They have got a whole complex set of problems out there that are caused by relying only on conservation and not doing anything about the supply side of the equation.
We found out very shortly thereafter that, no, that was not right. It was not about conservation and supply side; it was about the manipulation of the electricity market. There were lots of people like that. The Cato Institute had a similar take on it. This was in 2002. In 2002, we had gone through much of the Enron debacle, and we had seen prices in the State of Washington for electricity rise almost 3,000 times what they had been. Yet people were still saying:
Most of the price spike in 2000-2001 is explained by drought, increased natural gas prices, the escalating cost of nitrogen oxide emissions ..... and retail price controls.
We all know the history, now that we have had a few years to look back on it. It wasn't those supply and demand factors but the fact that we actually had unbelievable manipulation of the electricity market.
The reason why I am bringing that up is because I wish to make sure we are policing the oil markets. I wish to make sure we in the United States are doing everything we can to burst this oil price bubble we are seeing. We want to pop this price bubble and give consumers a more reliable number about supply and demand that even the oil company executives are saying. They have testified before Senate committees saying oil should be anywhere from $50 to $60 a barrel; that what we are seeing in the marketplace is not about the normal supply-and-demand features, but it is actually about the fact that something else is going on in the marketplace. This is one CEO from ExxonMobil, recently in early April, who testified:
The price of oil should be about $50-$55 per barrel.
I am not against discussions about future oil exploration. That is not the point. The point is, what are we going to do to solve this problem and burst this price bubble that while we are going out for the Memorial Day recess is going to continue to plague the economy, continue to plague our consumers, and continue to cause major havoc to our economy.
I think one of the solutions is to ensure effective oversight in the oil market as it relates to oil futures. I know people say they might not wish to talk about oil futures, but I am going to talk about oil futures because of the effect of substantial deregulation has had on these markets. On December 15 of 2000, at 7 p.m. on a Friday night as Congress was adjourning a lame-duck session, the last day of the 106th Congress, on an 11,000-page appropriations bill came to the floor of the Senate, we added a 262 page amendment--the Commodities Futures Modernization Act--that basically deregulated the energy futures market and said it didn't have to have the oversight of other products.
While the Commodities Exchange Act Reauthorization that recently passed as part of the Farm bill gives the CFTC more teeth to police these U.S. futures markets, under an administrative loophole speculators are still free to trade U.S. based energy commodities on U.S. trading engines free from full U.S. oversight meant to prevent fraud, manipulation, and excessive speculation. This is done under and informal CFTC staff ``no-action'' letter, which essentially means that the CFTC will not take action against a foreign exchange to prevent fraud, manipulation, and excessive speculation. That means, at least on ICE Futures Europe, trading of U.S. crude oil futures, particularly the West Texas Intermediate oil contract, and U.S. home heating oil futures and U.S. gasoline futures--products that are produced in the United States, delivered in the United States, consumed in the United States, and traded in the United States--are escaping U.S. oversight. I think that is a great concern to the American consumer who wants to make sure we have transparency in energy markets.
If we think about other trading, stocks for example, we have the Securities and Exchange Commission. They look at the stock market, and they have oversight to make sure there is nothing untoward happening in the market, like manipulation. We also have NYMEX, another exchange in the United States. The Commodity Futures Trading Commission oversees that futures exchange and has oversight. Also the Chicago Mercantile Exchange--the CFTC has oversight of that futures exchange. The CFTC implements market rules. But as for trading U.S. energy futures on ICE Futures Europe, the CFTC has said: No, we don't have to have oversight of that exchange.
As I mentioned, the Congress has charged the CFTC with protecting consumers by policing futures markets for fraud, manipulation, and excessive speculation. It does this by requiring certain market rules like position limits, large trader reporting, record keeping, and trader licensing and registration. These are tried-and-true tools that Government has used to protect consumers, to protect investors, to protect business, to protect our economy, to make sure manipulation is not happening.
I often think these are great programs, but wonder why we allow certain trading of critical energy commodities to escape such oversight requirements. I always like to give the example of cattle futures because somehow it seems we are more willing to regulate hamburger in America and than we are oil.
Here are two examples of U.S. commodities: cattle futures trading and oil futures trading. When we look at the rules, cattle futures are not an exempt commodity; but when you consider the ICE Futures Europe, oil certainly is. For cattle futures, the exchange trading U.S. cattle futures has to register with the CFTC, whereas oil trading on the ICE Futures Europe does not. And daily reporting requirements: more for hamburger and less for oil on ICE Futures Europe. What about speculative limits? more for hamburger and less for oil on ICE Futures Europe.
Why am I so concerned about this significant change that transpired? The significant change that transpired is since ICE Futures Europe--which again is not subject to U.S. oversight meant to prevent fraud, manipulation, and excessive speculation--began trading West Texas Intermediate oil in February 2006, oil has gone from $60 a barrel in 2006 now to over $134 a barrel. You bet I want to get down to the brass tacks about exactly how this exchange is working, to have the oversight and to see what large trading positions are being used in this market.
Many people have a concern about this. One report in the Asia Times was quoted as saying:
Where is the CFTC now that we need [speculation] limits? It seems to have deliberately walked away from its mandated oversight responsibilities in the world's most important traded commodity, oil.
This is by F. William Engdahl, who said this in early May of this year.
People are observing and wanting to know what we are going to do about this situation. That is why I think it is incredibly important to take action. What am I talking about, taking action? First of all, today Senator Snowe and myself and several of our colleagues are sending a letter to the CFTC insisting that they reverse their no action in oversight of this foreign market, noting that this is a dark foreign market where oil futures are traded. We are saying bring the bright light of day into this exchange and protect consumers by ensuring that market manipulation of oil prices is not happening.
As I said, the CFTC basically gave up this oversight under an informal staff no action letter process. How did this happen? Well, in 1999 the London based International Petroleum Exchange, the IPE, which was a much smaller and foreign owned exchange, asked the CFTC for a no action letter, and received it. The IPE wanted to locate trading terminals in the U.S. but did not want to be subject to direct CFTC oversight. The CFTC decided that the IPE did not have to have to be subject to direct CFTC oversight because the CFTC agreed that the United Kingdom was going to be doing it. Then, in 2001, the U.S. owned, Atlanta based, InterContinental Exchange, or ICE, came along and bought the IPE. After that, the now U.S. owned IPE continued to escape U.S. oversight even though it received the foreign exchange no action letter based on it being a foreign based exchange.
So, in 2001, we can see a U.S. based entity basically purchased this foreign exchange, and the CFTC did not take action. In 2006, now named ICE Futures Europe, it starts trading what is a U.S. oil product, trading on U.S. desks in the United States and the CFTC continues to basically take no action to review that.
Our letter says the CFTC should start reviewing these trades immediately and reverse their no action decision. We hope that while we are at recess, the CFTC will take this action.
Why is this so important? Because many are concerned that U.K. oversight over U.S. energy trading is not sufficient to protect our consumers from fraud, manipulation, and excessive speculation. In fact, CFTC Commissioner Bart Chilton, on April 22 of this year, said:
I am generally concerned about a lack of transparency and the need for greater oversight and enforcement of the derivatives industry by the [United Kingdom's Financial Services Authority].
He is basically saying he has great concerns about the oversight by the government in the United Kingdom. He should have great concerns about that because the oversight in the United Kingdom is not comparable to the oversight in the United States.
The problems at the FSA led to the collapse of England's Northern Rock Bank. There was much written about this issue. They had high turnover in the staff, inadequate numbers to carry the load of what they were responsible for, very limited direct contact with the bank, incomplete paperwork, and limited understanding of their duties.
All this led to major problems, and it led the CEO of the Financial Services Authority to say:
It is clear from the thorough review carried out by the internal audit team that our supervision of Northern Rock in the period leading up to the market instability of late last summer was not carried out to a standard that was acceptable.
There are those in the United Kingdom who are criticizing the oversight abilities of their Financial Services Authority to handle this area.
The CFTC could act today in helping the United States bust this price bubble by doing their job and step in to provide needed oversight of this market.
One energy trader analyst from Oppenheimer said in April:
Unless the U.S. Government steps in to rein in speculators' power in the market, prices will just keep going up.
This is what energy analysts are saying. So we have a great deal of continuity in the marketplace of people telling us it is time for us to act. In fact, we are going to be having a hearing when we return on Tuesday after the Memorial Day recess. I know we are going to hear from many people, but one of them will be Professor Greenberger of the University of Maryland Law School, a former CFTC department head, who testified before one of our joint Democratic Policy Committee hearings. He says:
The ICE [oil trading] loophole could be ended immediately by the CFTC without any legislation.
I want to make sure the CFTC knows we will continue to pursue this. We hope they take action. We hope they will address this issue. But if they do not, we stand ready to make sure oversight in this financial market, that is a dark market on the ICE Futures Europe exchange, has the bright light of day and that they take immediate action to start investigating what is happening in our U.S. commodities markets so we can give consumers better protection. It is time to burst the oil price bubble. I think people everywhere across this country, and analysts on Wall Street, are saying: This is not supply and demand. So it is up to us to make sure we have the enforcement in place to protect consumers, and that is what we hope the CFTC will realize their role and responsibility is.
I thank the Chair, and I yield the floor.
The PRESIDING OFFICER. The Senator from Utah is recognized.
Mr. HATCH. Madam President, I was very interested in the distinguished Senator's remarks and her analysis. What is interesting to me is that a number of years ago Boone Pickens came to me and when oil was down around $40 a barrel, he said: Orrin, oil is going to go to 60 bucks a barrel, and it is going to go up from there to $100 a barrel. This was years ago. And I said: That is not true. He said: It is true. Well, he told me a couple of weeks ago, and this is pathetic, and said we are sending $600 billion of our money to purchase non-American oil when we have it within our grasp to create much of the oil the United States of America needs from our own American oil sources.
I will cite with particularity the oil shale and tar sands in Colorado, Wyoming, and Utah. It is well established that there are 3 trillion potential barrels of oil there, and it is pretty much taken for granted that we can get at least 800 billion to almost 2 trillion barrels of oil out of that at somewhere between $40 and $60 a barrel. But because of legislative maneuvering by my friends across the aisle, we can't get regulations established to do the work that has to be done.
Now, I am for every form of alternative oil. And, frankly, nobody has a right to say I am not because I am the one who passed, with some very important colleagues, the CLEAR Act. The CLEAR Act created the incentives for alternative fuels, alternative fuel vehicles and alternative fuel infrastructure that are being used right now.
Ms. CANTWELL. Will the Senator yield for a question?
Mr. HATCH. Yes.
Ms. CANTWELL. I certainly want to say that I know of the work of the Senator from Utah, because we worked together on plug-in hybrids and other incentives, and he clearly does support renewable fuels and changing our tax credit policies, so I applaud that.
I am glad you brought up Boone Pickens, because I heard him on the TV the other day, I think it was 2 days ago, and he said that while he thought the United States had great opportunity in natural gas, he thought the way to get off our dependence on foreign oil, besides that, was to make investment in wind and solar. So I will look forward to working with the Senator when we return on trying to push those tax policies to make sure we continue to incent those good renewable energy policies.
Mr. HATCH. Well, I thank the Senator from Washington for her comments, because she has been central to this effort, especially with regard to plug-in hybrid vehicles. Now, those are a still a distance away yet, but, nevertheless, we can do it. That effort may not completely solve our energy problem, but it certainly would alleviate some of it.
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