Democrats: Close speculation loophole
Senate Democrats look to end U.S. electronic oil trading in foreign exchanges to reduce the speculative inflation of oil prices.
NEW YORK (CNNMoney.com) -- Democratic Senators are working to combat rising oil and fuel prices by attacking what many Americans see as the heart of the problem: speculative trading.
Many politicians and energy industry analysts blame oil speculators for cashing in on the fuel cost crisis and, in the process, boosting the price of oil. Hedge funds, trusts, and independent investors have also poured funds into crude oil as a hedge against the weakened dollar.
"A major contributor [to high oil prices] is the rise in speculation," said Sen. Carl Levin, D-Mich, who estimated that speculation has added about $35 to a barrel of oil. "This is not a supply and demand issue."
Levin said the solution can be found in closing the loopholes that allow electronic traders to buy oil outside of the United States. Levin noted that the "Enron loophole" will be ended if President Bush signs legislation that Congress passed as part of the proposed Farm Bill.
The "Enron loophole" was codified in the Commodity Futures Modernization Act of 2000, allowing oil futures to be traded electronically in unregulated markets outside of the jurisdiction of the Commodities Futures Trading Commission.
But Levin also said he is introducing a bill, calling for an end to all electronic loopholes, including the buying of oil electronically in regulated markets like the commodities exchange in London.
"[U.S.] computer terminals will be governed by U.S. regulation, because the computer terminal is located in the United States," Levin noted.
By making global speculative trading more difficult for investors, Levin and other Senate Democrats believe the artificial inflation of the price of oil will eventually fizzle.
"This administration needs to begin to lead," said Sen. Jack Reed, D-R.I. "They need to put together a task force ... and begin to look seriously at what's happening in the marketplace."
Crude prices hit a record $123.90 a barrel Thursday, after a Goldman Sachs analyst predicted earlier this week that oil could rise as high as $200 over the next six months to two years.
Gasoline prices have also risen dramatically - more than 18% so far this year. Retail gasoline hit a record $3.645 a gallon, on average, nationwide on Thursday, according to motorist group AAA.
"This crisis is really affecting everyday people," said Sen. Amy Klobuchar, D-Minn. "We need an energy policy in this country ... that moves towards a bold energy future."
Klobuchar suggested that the best solution to rising oil prices is to achieve energy independence by investing in alternatives.
"Look at Brazil - they're energy independent," said Klobuchar. "Of course, it's easier for them, because they have sugar cane, but it's unbelievable that our country would be leapfrogged by the country of Brazil."
The Organization of the Petroleum Exporting Countries (OPEC) also drew fire from Klobuchar.
"We need to stand up to OPEC, whose oil production is at artificially low levels," she said. "We need to invest in the farmers and workers of this country instead of oil cartels."
Thursday's press conference comes a day after members of the House Judiciary Committee heard testimony about the effect that rising gas prices have taken on the trucking and refining industry as well as the average consumer. A separate House committee also heard testimony earlier in the week about the spike in diesel costs that has hampered the trucking industry and contributed to soaring food prices.