June 30, 2008

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.



June 30, 2008

Late yesterday, the House introduced and passed the Energy Markets Emergency Act of 2008. H.R. 6377 directs the CFTC to take emergency action to address excessive speculation, swap transactions, and price distortion in energy markets. The bill’s passage, by an overwhelming majority of 402-19, sends a message to the energy traders that more legislation is to come.

House Democratic leaders hope to bring broader legislation to the floor next month that requires greater transparency and new curbs on speculation by pension funds, big banks and other investors. You will recall that on Tuesday, the House Agriculture Committee announced a markup scheduled for Wednesday that would address speculation in energy commodity markets. However, Chairman Collin Peterson (D-MN) decided to wait until he could hear from members of Congress and energy analysts who have taken a lead on the issue and the markup was cancelled. The bill (H.R. 6334) sponsored by Rep. Bob Etheridge (D-NC) would expand oversight and increase funding and staff levels at the CFTC, but some members of Congress complained that the bill would not go far enough to rein in excessive speculation. The House Agriculture Committee plans on spending more time on the issue once the House returns from July 4 recess. Please review H.R. 6377 here. (pdf file)

Although this is positive news and a strong indication that there could be enough votes on both sides of the aisle to pass a broad bill to fully address excessive speculation in the energy commodity markets, this is the time that we need to go full steam ahead with the PMAA Stop Oil Speculators campaign!

Congress needs to hear from all of us loud and clear that a full and comprehensive solution must be made immediately! Please contact PMAA if you need information about the campaign and how to receive campaign material to distribute at your retail stations.


June 2, 2008

Senators Richard Durbin (D-IL), Olympia Snowe (R-ME), Herb Kohl (D-WI), and Arlen Specter (R-PA) have sent a letter to Joseph Saunders, Chairman and Chief Executive Officer of Visa Inc., and Robert Selander, President and Chief Executive Officer of MasterCard Worldwide, asking them to provide detailed documentation on the methodology and data that Visa and MasterCard use to set interchange fee rates. Interchange fees are supposed to ensure that issuing banks can cover their costs in processing and authorizing transactions. However, the $42 billion that Visa and MasterCard collected last year has raised concerns in Congress that interchange fees are an enormous profit center through which a variety of marketing and rewards programs are funded.

The Senators requested that Visa and MasterCard provide by June 3 an itemized list of the costs that issuing institutions bear in processing transactions made with Visa and MasterCard cards. The letter also asks for data on the amount of costs per transaction and for information on activities paid for by interchange fees.


June 2, 2008

The Commodity Futures Trading Commission (CFTC) announced yesterday that it is taking several steps to address the skyrocketing price of crude oil. Among them was the announcement that the CFTC is six months into an investigation of crude oil trading. In addition to the ongoing investigation, the CFTC said it has reached agreements with British and European regulators that would bring transparency to trading activity regulated by authorities overseas.

This announcement follows intense pressure from Congress on the CFTC to increase oversight and bring transparency to unregulated markets.