“Mr. President, the Senate is scheduled to vote this morning on the motion to proceed to legislation introduced last week by the Majority Leader (the Stop Excessive Energy Speculation Act of 2008, S. 3268), which is designed to shed additional light on trading activities in global oil markets.
“Mr. President, I hope the Senate will indeed invoke cloture this morning, and that we can proceed in a bipartisan fashion to debate this legislation. The topic of speculative investment in our energy markets has been the subject of multiple hearings in the Senate Energy and Natural Resources Committee, which I chair, along with a handful of different Committees in both the Senate and House of Representatives during the 110th Congress.
“We have heard testimony from industry analysts, traditional producers and consumers of petroleum products that the recent run-up in crude prices can be attributed, at least in part, to the rise of ‘new fundamentals’ in our energy markets. These ‘new fundamental’ forces include non-traditional investment flows into energy commodity markets, as asset managers seek to hedge against inflationary risks and the decline of the value of the dollar.
This flight of investment into commodities is a symptom of our ailing economy in general. But it also poses a number of questions from an energy market perspective: among them, whether and how the influx of billions of dollars in relatively passive investment is impacting the fundamental price-discovery function these financial markets were designed to perform. That is to say, to some pension fund managers and index investors taking positions in the oil markets, the price of a barrel of oil on any given day may be immaterial. Whether the price is $5 or $500 per barrel, their oil market positions are designed to balance the risk in other parts of their investment portfolios.
“The question for policymakers is whether this investment -- the demand for paper barrels -- has begun to swamp the price signals generated by the more traditional hedgers, the large producers and consumers of petroleum products in tune to the real-time dynamics of supply and demand.
“During the course of the multiple hearings we have held in the Energy Committee, through a series related correspondence with the Commodity Futures Trading Commission (CFTC) and in the ensuing debate in the Senate, I believe that a compelling case has been made that the CFTC does in fact require more authority, more resources, and more explicit direction from Congress to examine these issues in detail.
“Sen. Reid’s legislation would provide the CFTC the tools to do just that. The legislation:
ü codifies recent CFTC initiatives related to the conditions under which the U.S. will allow traders access to Foreign Boards of Trade on which energy commodity contracts are listed -- an important signal to the market that the U.S. will take a stronger stand on efforts to circumvent domestic trading rules;
ü provides much greater transparency in over-the-counter markets -- another key building block to putting in place forward-leaning regulatory policies adapted to the increasingly global and electronic environment in which energy is bought and sold; and
ü It also includes a number of provisions that fall within the jurisdiction of the Energy Committee, designed to shine additional light on the nexus between physical and financial energy markets -- and to ask some of the same questions about natural gas markets that we have been asking about petroleum over the past few months. I believe this is an important effort, in light of what may prove to be a very difficult winter heating season.
“Mr. President, there are clearly ways in which we can improve the underlying legislation if we have the bipartisan will to do so. In addition, I know that my friends on the other side of the aisle would like to expand the debate on the energy speculation bill, to address additional supply and demand-related issues. I believe the Majority Leader has indicated an openness to that as well, if we can come together on a plan for consideration of such amendments. It’s clear to me that there is indeed more we can do on the topics of curtailing demand and expediting the availability of domestic supply here in the U.S., and will be offering some proposals along those lines. Hopefully, we can find areas of commonality on those measures as well.”
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