The Senate Homeland Security Committee Permanent Subcommittee on Investigations recently held a hearing titled, “Speculation in the Crude Oil Market” to examine whether speculation in energy markets has caused, at least in part, the recent spike in energy prices that has become a financial hardship on families in Maine and throughout the nation. Senator Collins, who is Ranking Member of the Senate Homeland Security Committee, has called on Congress to pass carefully crafted legislation to help monitor and curb speculation on futures markets that artificially drive up prices. She has also called for a national strategy to pursue the long-term goal of energy independence.
Senator Collins said, “Long before the first day of winter, the people of Maine have been coping with cold weather and feeling the strain of high prices for home heating oil, gasoline, diesel fuel, and other products from refined oil. Oil prices touch virtually every corner of the economy.”
She pointed out that a number of causes contribute to the sharp rise in oil prices such as increased global demand for crude oil, instability in the Middle East and Venezuela, supply decisions of the OPEC cartel, insufficient U.S. refining capacity, the declining value of the dollar, and speculative trading on futures markets.
Senator Collins said, “I have heard recently from the Maine Oil Dealers Association and from commercial truckers in Maine who believe that speculation has been a factor in the oil prices. Unfortunately, there is a lack of publicly available data to track the effect of speculation on market prices, and manipulation can go undetected on certain unregulated markets. That is why I support expanding the authority of the federal government to oversee energy futures markets and to provide greater transparency to guard against manipulation.”
During the hearing, the issue of the Strategic Petroleum Reserve (SPR) was raised and questions were asked about whether the Department of Energy’s (DOE) decision last year to add oil to the SPR contributed to the increase in oil costs. In 2005, Senators Carl Levin (D-MI) and Collins were successful in a bipartisan provision that directed DOE to better manage the SPR by suspending purchases when prices were high, so as not to drive up prices further by taking oil off the market.
One expert witness attributed the dramatic price increases since August to DOE oil purchases and warned that continued, large-scale additions of low-sulfur oil to the SPR could drive crude oil prices as high as $120 a barrel by spring.
Senator Collins questioned hearing witness Guy Caruso, Administrator of the U.S. Energy Information Administration whether DOE had followed the 2005 law by taking into account the impact the SPR would have on the price of oil in the U.S. Caruso told Committee members that he would look into the matter and report back to the committee.
Other witnesses included; Philip Verleger, Energy Markets Consultant; Fadel Gheit, Managing Director and Senior Oil Analyst with Oppenheimer &Co. Inc.; and Edward N. Krapels, Energy Security Analysis Inc. (ESAI).