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Why a Maine GOP senator is taking on oil speculators
David Lightman and Kevin G. Hall | McClatchy Newspapers

last updated: June 12, 2009 04:03:30 PM

WASHINGTON — Oil prices shot past $72 a barrel this week, and a growing number of experts point to Wall Street speculators as a key reason why Americans are suddenly paying a lot more for oil and gasoline.

Although soaring oil prices threaten the fragile economic recovery, most Capitol Hill lawmakers have remained silent about them, but not Sen. Susan Collins. The Maine Republican pumps her own gas and heats her Bangor home with oil, and on trips home, she gets an earful from angry consumers, who, like her, blame speculators.

"Constituents get it," she said. "They don't see the reason for it. They don't see (supply) shortages. They don't see (the Organization of Petroleum Exporting Countries) greatly reducing production or other reasons prices are going up so much."

Collins has been one of the few on Capitol Hill and even fewer Republicans who blame the rising oil prices in part on Wall Street investors. She and her allies, mostly Democrats, are trying to limit speculative investments in oil and other commodities, but they say they need more support from President Barack Obama.

McClatchy has been reporting for 14 months that speculative investment — not simply supply and demand — has been helping drive oil prices higher. On June 5, Deutsche Bank, a major global financial institution, echoed the warning that excessive speculation is behind rising oil and gasoline prices. The price of crude peaked nearly a year ago at $147 a barrel.

"Crude oil prices appear to have been divorced from the underlying fundamentals of weak demand, ample supply, and high inventories," commodity analysts at the bank wrote. "Rising OPEC production and very high OPEC spare capacity also appear to be unimportant to oil market investors at this time."

OPEC on Friday further reduced, by 1.62 million barrels per day, its forecast for global oil consumption this year.

Yet a weaker dollar and bullish views on a global economic recovery are driving speculators back into the oil market, prompting a new wave of speculative investment from non-commercial traders — those who don't actually use the product — into contracts for future delivery of oil.

"We believe the current oil market environment bears a striking resemblance to the 2005-2008 environment, both of which are characterized, in our view, by fundamentally unjustifiable price increases," said Mark Gilman, a veteran oil analyst for investment manager The Benchmark Company, who added that oil should cost about $50 a barrel.

Exactly, Collins said.

"You can't have this enormous influx of non-commercial trades and so much money and think that it doesn't affect the price," she said.

Speculators such as Gresham Investment Management, a company that invests in commodities on behalf of big players such as pension funds and endowments, disagree.

"Speculators simply bet on the price of an underlying commodity, and because they control neither the supply of nor the demand for the commodity, they leave themselves open to the vagaries of the market," said Jason Ungar, Gresham's managing director, who fears that Collins and others will set limits on oil trading.

Collins, 56, hails from Caribou, the northern Maine city of about 8,000 people where her family has owned a lumber company for five generations. Both her parents were mayors of Caribou, and Collins has a long career in public service, first as a U.S. Senate staffer and later as a state regulator before she was elected senator in 1996.

She returns home every weekend. Asked if she knows the current price, she quickly shot back, "You bet I do!"

Some 80 percent of the homes in Maine are heated with oil, and rising gasoline prices hurt Maine's tourist industry. Collins regularly meets truckers, shop owners and retirees across the state who fret about rising energy costs. Elderly constituents tell her that they expect to move in with their children if home heating prices keep rising.

"She gets it," said Mark Brewer, an assistant professor of political science at the University of Maine.

That was evident earlier this month when the mild-mannered Collins grilled Gary Gensler, the recently confirmed chairman of the Commodity Futures Trading Commission.

"I understand that those investors' intention is to provide good returns as a hedge against inflation, asset diversification," she said. "But the effect of that activity cumulatively appears to drive up the price for some of the traditional users of the commodity markets."

Her view that speculative investing is behind rising prices, she suggested, came from ordinary folks, adding that, "Just a week ago, Maine's fuel dealers were in my office saying that they believe excessive speculation by non-commercial players is once again driving up the cost of oil."

Collins supports the Obama administration's recent call for limits on how much trading of oil contracts can be done by those who aren't users or producers of oil. She also wants to close a loophole that allows big Wall Street firms such as Goldman Sachs and others to avoid limits on how many oil contracts they can trade.

That's important, said hedge fund manager Michael Masters, because speculative investors now dominate the oil markets. A decade ago, speculators controlled about 25 percent of all overnight holdings of oil contracts, but today they control about 80 percent.

"It's completely reversed," said Masters, who testifies frequently before Congress.

Collins isn't alone in her quest. Sen. Bernard Sanders, an Independent from Vermont, held up Gensler's nomination for two months before he got assurances that the Obama administration would consider more regulation of commodities markets.

Senate Agriculture Committee Chairman Tom Harkin, D-Iowa., hopes to pass new commodities regulations by fall, and these efforts are supported Sen. Carl Levin, D-Mich., the chairman of the Permanent Subcommittee on Investigations.

The Maine Republican has another distinction, however: She's one of only three Republican U.S. senators from the Northeast — the others are Olympia Snowe of Maine and Judd Gregg of New Hampshire — and she's a rare Republican who favors further government regulation of oil trading.

It's why she thinks that ultimately changes may come only when Obama gets personally involved.

"He can help us explain why it matters," Collins said.

Collins was also one of only three Republicans voting in favor of Obama's economic stimulus bill, and that only after getting a promise of spending cuts and more school construction. Obama may need a handful of Republicans to revamp of financial regulation, including the oil markets.

Will Collins demand something again from the president in exchange for crossing party lines?

Offering a coy smile, Collins answered, "I do think the president has been receptive when I make suggestions."


The Price Of Oil

The historic swings in oil prices last year were the result of financial speculation from Wall Street and not supply and demand. Steve Kroft investigates.  

CBS-"60 Minutes"                                                  

Read: The Price Of Oil


12-Year-Old May Hold Key to Solar Energy
Alan Henry - PC Magazine

One significant problem with existing solar technology is that it's not terribly efficient at harvesting solar energy and turning it into electricity.

Solar technology is improving all the time, but one 12-year-old boy may have the key to making solar panels that can harness 500 times the light of a traditional solar cell. William Yuan is a seventh grader in Oregon whose project, titled "A Highly-Efficient 3-Dimensional Nanotube Solar Cell for Visible and UV Light," may change the energy industry and make solar energy far easier to harness and distribute.

At the heart of Yuan's project is a special solar cell that can harness both visible and ultraviolet light. Most solar cells in use today are either photovoltaic, meaning they harness only visible light, or thermal. While visible, infrared, and ultraviolet light are all heavily scattered or absorbed by the Earth's atmosphere, ultraviolet light comes in at shorter wavelengths and with higher energy than both visible and infrared light. Ultraviolet light can provide more energy to a collector than other, longer-wavelength members of the electromagnetic spectrum. Yuan's solar cells are not just innovative for their collection of UV light, but also because they're engineered to stand freely in three dimensions (which allows them to collect more light) and make use of carbon nanotubes, which allow the cell to distribute the energy it collects without dissipating as much as traditional cells do.

Yuan is looking for a manufacturer to invest in building his new solar cell, and likely won't have a problem finding a partner. Yuan's solar cells have earned him a $25,000 scholarship to fund his education and research, a fellowship at the Davidson Institute for Talent Development, and a host of other awards in science and engineering. Yuan isn't the only young inventor making a difference, more and more young innovators are changing the face of clean technology.


Republicans Rejects Bill To Boost Drilling On Leases

The House of Representatives failed to approve legislation on Thursday that would have pushed oil companies to drill on federal leases they already hold while requiring the government to more often lease tracts in an Alaskan oil reserve.

House Democrats, trying to show they favor more U.S. oil production in light of record gasoline prices, came up with the bill to counter White House and Republican lawmakers' calls to lift a congressional offshore drilling ban. The White House had threatened to veto the measure.

The bill had a "use it or lose it" provision that required oil companies to diligently develop their existing federal leases or turn them back to the government before they could obtain new acres.

The legislation would have also mandated that the Interior Department conduct yearly leases in the National Petroleum Reserve in Alaska, which holds an estimated 10.6 billion barrels of oil.

"Increasing domestic supply means facilitating drilling where it is allowed already in tens of millions of acres across our country," House Speaker Nancy Pelosi said.

The House voted 244 to 173 in favor of the legislation, but the measure fell short of obtaining two thirds of the "yes" votes that was required when the chamber suspends its rules to quickly act on a bill.

Under the suspension of the rules, Republicans were blocked from amending the bill. Republicans say they had enough votes to pass the bill with an amendment lifting the ban on offshore drilling, which is opposed by the Democratic leadership.


T. Boone Pickens is a billionaire oil man and a career corporate raider who loves George Bush so much he donated $250,000 to his 2004 inaugural ball. He was, and still is, fully behind the invasion and occupation of Iraq and makes no bones about it. So why is he now pushing for the use of alternative energy sources like wind and solar in his Pickens Plan?

It might be because he sees the soaring price of gas and how it is crushing the average American and decided to invest billions of dollars of his own money on a bet that it will pay off. His holdings in natural gas would make his a very healthy profit, should we convert to using it more.  Don’t get me wrong, I support anyone who wants to lower our dependence on oil and clean up our environment, but if you watch the above video and go to the PP website you’ll see that the environment doesn’t get much play.  In fact, considering his push for OCS drilling, I’d say the environment isn’t the overriding issue, just ridding us of our dependence on foreign oil. 

Carl Pope, Executive Director of The Sierra Club has praised his plan, going so far as to say Pickens is “out to save America” — and I have no problem with that — but do financial motivations vs. environmental motivations matter? Should we just be thankful that someone has stepped up to the plate, even if it means that the ultra-wealthy will once again control our energy resources, or do we strive for more ownership in the future of our own energy policy and demand more emphasis and accountability on our environment?  In the end, will Pickens’ plan even work

Gas Pains and the Enron Loophole

Time to fight OPEC and speculators
Joel D. Joseph is chairman of the Made in the USA Foundation

WASHINGTON-Contrary to popular myths, the price of oil is not magically determined by supply and demand. The price of oil is manipulated by OPEC (the Organization of Petroleum Exporting Countries) and by speculators.

Other factors, including the war in Iraq and new demand from India and China, as well as momentum, have contributed to the price of oil rising so far this year more than 40 percent, to $143 barrel.

Without the war in Iraq, OPEC restrictions on supply and speculation, the price of oil would be about $50 a barrel, or less. The astronomical price of oil is contributing to a worldwide recession and adding to the food crisis by increasing the cost of basic grains.

The International Energy Agency estimates that global demand will rise to 86.8 million barrels a day this year, up from 85.8 million barrels last year, due largely to booming demand from developing nations such as India and China. This represents an increase of just over one percent, not a dramatic increase. Certainly not an increase that would justify a price increase of nearly 100 percent in the last year.

The increased demand from India and China is relatively small compared with the other factors. According to the U.S. Department of Energy, annual Chinese demand for petroleum has increased over the last five years from 1.88 billion barrels to 2.8 billion barrels, an increase of 920 million barrels a year or about 2.5 million barrels a day.

This increase corresponds to the U.S. decrease in oil consumption.

Demand for oil in United States fell about 3 percent in the first three months of this year. As prices rise the demand will fall. Similarly, the supply of oil should increase as prices rise, but OPEC has not allowed this to happen.

At the same time, speculation in oil futures has increased. This is a relatively recent phenomenon. Futures contracts for oil, the Nymex only began trading in 1981. Trading in commodity futures let speculators buy a crude-oil futures contract by having to pay only a small portion (about 6 percent) of the value of the contract. For example, at a price of $130 a barrel, this means that a futures trader only has to put up only about $8 for every barrel, while borrowing the other $122. This ability to leverage commodity futures purchases by up to 16 to 1 helps drive prices to wildly unrealistic levels. Added to this is the momentum of the rise in oil prices—it seems to keep going up and up with new speculation adding fuel to the fire.

I propose that Congress and foreign governments end OPEC’s cartel and prohibit speculators from buying and selling oil.

Several Connecticut oil dealers are joining forces with U.S. Rep. John Larson (D.-Conn.) to support federal legislation that would curb commodities speculation. Larson’s proposal would forbid people from speculating on oil unless they are an “end user” of the product.

This would let United Airlines, for example, buy future oil contracts, but would prohibit pension funds and billionaires not in the oil business from speculating in oil. Speculators have stockpiled the equivalent of more than one billion barrels of oil, more than any single government, driving the price of oil to record levels.

German leaders have proposed a worldwide ban on oil trading by speculators, blaming the latest spike in crude prices on manipulation by hedge funds. India has already suspended futures trading of oil.

Uwe Beckmeyer, transport chief for Germany’s Social Democrats, said his party would call for joint measures by the G8 powers to prohibit leveraged trading on energy contracts. Mr. Beckmeyer said the last 25 percent rise in the price of oil had nothing to do with underlying supply and demand. “It’s pure speculation,” he said.

Washington overcame a significant obstacle recently in its attempt to allow lawsuits against OPEC for behaving like an oil cartel and keeping the price of petroleum artificially high. I participated in an antitrust case against OPEC 30 years ago — the U.S. courts refused to let OPEC be sued in American courts unless Congress expressly allowed it. Now Congress has done so. The House overwhelmingly approved legislation to bring a lawsuit against OPEC nations for price fixing. President Bush is opposed to the legislation because he believes that it will trigger retaliatory measures by OPEC member countries such as Saudi Arabia against American business interests. While the law still has to be passed by the Senate, the size of the majority in the House — 324 votes in favor versus 84 against — is sufficient to override a Bush veto.

We don’t have to sue OPEC to get results. The United States and European nations can put pressure on OPEC nations by withholding or revoking World Trade Organization memberships, or by restricting trade in other products, such as automobiles, oil equipment and aircraft.

African and Asian nations, which are harmed most by OPEC’s price gouging, can join the chorus as well.

Breaking up OPEC and reducing speculation are only short-term answers.

In the long run, the United States must be self-sufficient in energy by using solar, wind and other alternative sources of energy.

Germany, not a country known for its sunny climate, has more solar panels in place than the United States. Brazil has become self-sufficient in energy and the United States can do the same.


Emanuel, Hinchey, Markey, Rahall to Introduce Legislation to Force Big Oil to Use Owned Leases

For Immediate Release                      


Rep. Markey, 202-225-4081
Rep. Emanuel, 202-225-1400
Rep. Rahall, 202-226-9019
Rep. Hinchey, 202-225-6335                                                                                                                                             

Emanuel, Hinchey, Markey, Rahall to Introduce Legislation to Force Big Oil to Use Owned Leases

WASHINGTON – House Democratic Caucus Chairman Rahm Emanuel, Rep. Maurice Hinchey, Chairman Edward J. Markey and Chairman Nick Rahall today announced plans to introduce legislation that will help lower gas prices by compelling oil companies to utilize the 68 million acres onshore and offshore that are being leased by big oil companies, but not used to produce energy. The members were also joined by Reps. John Yarmuth and Peter Welch.

Currently, oil companies are not producing oil or gas on the nearly 68 million acres of federal land already under their control.  Offshore, big oil is producing on only about 20 percent of the acres they hold, while onshore, companies are producing on less than 30 percent of the acres they hold. These unused areas could produce an additional 4.8 million barrels of oil and 44.7 billion cubic feet of natural gas each day, nearly double current domestic oil production.

“With nearly 68 million acres of on-shore and off-shore public land already leased for oil and gas drilling untouched by the energy companies who hold those leases, it's time for Republicans and oil company executives to stop making the false claim that the U.S. is not making enough land available for energy production,” Hinchey said. “Oil corporations are trying to take control of as much land now during the oil-friendly Bush administration years, but are holding off on drilling until the price of oil soars to $200 or $300 a barrel so that they can make even greater profits.  By stalling energy production, these major energy corporations are cheating the American people out of a domestic oil and natural gas supply, causing prices to unfairly and unnecessarily soar at the pump.  The federal government has made tens of millions of acres available for oil and gas development.  It's the energy companies that are refusing to produce and now we will make them pay if they continue to refuse to increase our domestic supply.”

Markey, Hinchey and Emanuel will introduce legislation that would assess a fee on land energy companies have leased but are not using for production.  This fee will escalate if leases go unused over the course of several years. Revenue raised from these fees will go towards renewable energy and energy efficiency investments, as well as the Low Income Home Energy Assistance Program (LIHEAP).  Chairman Rahall will also introduce legislation that employs a “use it or lose it” tactic that will compel oil and gas companies to either produce or give up the federal onshore and offshore leases they are stockpiling by barring the companies from obtaining any more leases unless they can demonstrate that they are producing oil and gas, or are diligently developing the leases they already hold.

“Big Oil, as many Americans already suspect, are perfectly fine with high gasoline prices at the pump, while they hold back domestic production on federal leases and enjoy world record profits. I am calling them on the carpet. I am calling their bluff. We are not going to continue to allow them to speculate and profiteer with public resources to the detriment of the American people,” said Rahall, Chairman of the House Natural Resources Committee.

“Big Oil seems more concerned with pumping up prices than pumping more oil,” said Markey. “When Big Oil already has tens of millions of acres available to them right now, it’s cynical of them to come to Congress and ask for more drilling territory. This is a drilling decoy. With gas prices increasing by the day, it’s time for Big Oil to produce or pay.”

“It's time for oil companies to use it or lose it,” added Emanuel. “These companies have access to millions of acres and there is nothing stopping Big Oil from using this land to produce energy.”



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