The three year PMAA member effort to educate Members of Congress and the press on the need to stop excessive speculation in the energy commodity market has begun to pay off! This issue is receiving constant attention from the media and from Congress with new bills being introduced on a daily basis.
The House Energy and Commerce Subcommittee on Investigations held a hearing on Monday to address whether excessive speculation is driving energy prices to record levels. House Energy and Commerce Committee Chairman John Dingell (D-MI) said in his opening statement that this issue is the greatest challenge for him in his entire lifetime. ICPA Executive Director Gene Guilford testified before the subcommittee by offering a first-hand account of how skyrocketing energy prices are affecting petroleum marketers. Others who testified included: Fadel Gheit, Managing Director and Senior Oil Analyst, Oppenheimer & Co.Inc.; Roger Diwan, Partner and Head of Financial Advisory, PFC Energy; Michael W. Masters, Managing Member and, Portfolio Manager, Masters Capital Management, L.L.C.; Dr. Edward N. Krapels, Director, Energy Security Analysis, Inc.; Doug Steenland, President and CEO, Northwest Airlines; Steven R. Williams, Chairman and CEO, Maverick USA, Inc.; Walter Lukken, Acting Chairman and Commissioner, U.S. Commodity Futures Trading Commission; Dr. James Newsome, Chief Executive Officer and President, New York Mercantile Exchange; Sir Robert Reid, Chairman, ICE Futures Europe, Intercontinental Exchange, Inc.; and Dr.Michael Greenberger, Professor of Law, University of Maryland.
Gene Guilford argued that petroleum marketers are no longer confident that the energy futures markets are doing their job of providing industry consumers with a benchmark for pricing product that is based off the fundamentals of supply and demand and that the futures markets no longer function as a tool to hedge price risks. He highlighted the problem facing petroleum marketers through their line of credit with banks which it is becoming a burden to secure additional credit to pay for fuel increases. He also informed subcommittee members of PMAA’s Stop Oil Speculators (SOS) public relations campaign.
The panel of independent energy analysts who testified recommended five points that should be addressed in any legislation: (1) require non-commercial investors to meet 50 percent margin requirements, (2) impose position limits on trades which would be established by a panel of commercial traders, (3) require full disclosure by any traders holding U.S. crude oil contracts, (4) prohibit investment banks from owning oil assets, and (5) impose stiff penalties on violators. Almost all who testified argued that crude oil prices should be at least below $100 a barrel and that imposing new rules and regulations on energy traders would lower the price of crude oil within weeks if not days.
On Tuesday, the Senate Homeland Security and Government Affairs Committee held a similar hearing to address speculation. Testifying before the committee were again Michael Masters, Dr. Michael Greenberger, CFTC Acting Chairman Lukken, and NYMEX President James Newsome. New witnesses were William Quinn, Chairman, Committee on Investment of Employee Benefit Assets and Dr. James Angel, Professor, McDonough School of Business, Georgetown University. In his oral testimony, Michael Masters stated that the oil market is experiencing supply and demand pressure plus additional demand for crude oil paper contracts which have distorted futures markets price discovery functions. He also reiterated from prior testimony that if legislation is passed to address excessive speculation, the price of crude oil would drop significantly. NYMEX President and CEO James Newsome said that position limits should be used on all exchanges and that full transparency is needed to ensure orderly markets.
On Wednesday, the Senate Committee on Small Business and Entrepreneurship held a hearing to address rising home heating oil prices. Testifying before the committee were PMAA members Sandra Farrell, Owner, Northboro Oil Company and Michael Ferrante, President, Massachusetts Oilheat Council. Others who testified included David F. Johnson, Deputy Assistant Secretary for Petroleum Reserves, Department of Energy, Jennifer Brooks, Community Relations Manager, Penquis, and Michael Stoddard, Deputy Director and Attorney, Environment Northeast. Ms. Farrell highlighted the tough conditions heating fuel dealers face daily. Specifically, she highlighted how heating fuel dealers’ account receivables, hedging insurance programs, and day-to-day operating costs are skyrocketing to unprecedented levels. Michael Ferrente offered additional insight regarding credit card fees and unfair state margin-over-rack leveraging programs which have added additional costs to dealer’s bottom lines. Most importantly, he urged Congress to increase transparency on all energy futures markets.
There is a sense of urgency on Capitol Hill to pass legislation this summer to restrain non-commercial investors in energy commodities and restore transparency and integrity to energy futures markets.