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Can Congress Give Us $2 Gas?

June 26, 2008 - by Donny Shaw

A proposal aimed at lowering gas prices is picking up bipartisan support in Congress. It’s not the summer gas tax holiday or opening up ANWR to drilling, but an increase in regulation of the speculators that now dominate the energy-futures market. At a hearing on Monday, energy analysts told Congress that if legislation to limit speculation in energy-futures markets was enacted, gas prices could go down by as much as 50 percent within 30 days.

MarketWatch:

> . Testifying to the House Energy and Commerce Committee, Michael Masters of Masters Capital Management said that the price of oil would quickly drop closer to its marginal cost of around $65 to $75 a barrel, about half the current $135.
>
>Fadel Gheit of Oppenheimer & Co., Edward Krapels of Energy Security Analysis and Roger Diwan of PFC Energy Consultants agreed with Masters’ assessment at a hearing on proposed legislation to limit speculation in futures markets.
>
>Krapels said that it wouldn’t even take 30 days to drive prices lower, as fund managers quickly liquidated their positions in
futures markets.
>
>"Record oil prices are inflated by speculation and not justified by market fundamentals," according to Gheit. "Based on supply and demand fundamentals, crude-oil prices should not be above $60 per barrel. .

A handful of bills designed to curb energy speculation have been introduced into Congress lately. For example, John Dingell’s (D-MI) bill, which has the support of Joe Barton (R-GA), the top Republican on the House Energy and Commerce Comittee, would create a working group to develop policy recommendations. Bart Stupak’s (D-MI) bill would close the infamous “London Loophole,” that currently allows U.S. traders to execute transactions outside the Commodity Futures Trading Commission’s regulation. Other proposals include a 50 percent margin requirement on speculators and prohibiting investment bankers from dealing in energy assets.

At this point, it’s unclear what approach they will take. But with expert testimony alleging the possibility of $2-a-gallon gas, Congress will no doubt be acting on this when they get back from July 4th recess.

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Comments

Anonymous 06/27/2008 10:56am
Just remember this, every Republican who tells you drilling on the continental shelf or in ANWAR will lower the gas prices we see today or in any real way in the future is lying to you..! This is one of, if not the biggest swindle in world history, brought to us by the same guys that brought us the Enron disaster and ripped off California for billions..it’s economic cannibalism, asymmetrical economic warfare against Americas economy and it’s people and our allies…

TJ Colatrella

Anonymous 07/09/2008 1:58pm

Can any of you explain how speculators who cannot actually afford to take delivery of oil and withhold it from the market can sustain inflated the prices with futures contracts?

I understand how it works for gold or houses or equities. For silver and the Hunt brothers in the 1970s, For tulip bulbs in Holland in 1637. The over priced items are bought and then kept off the market in hopes they will appreciate and until the dam breaks, they do.

Even at $150 a barrel, nobody can warehouse much value. What the speculator buys he must soon sell to a real user. All production must be sold to real users fairly promptly.

Producers have some ability to manipulate by pumping less (warehousing crude by leaving it in the ground works) but that is not something a futures speculator could do. It also does not seem to be what is happening.

So – any explanations of how this can be done?

SnowflakeSeven 07/02/2008 4:50am

Keep an eye out for Rep. Blumenauer’s [D-OR] “Transportation and Housing Options for Gas Price Relief Act of 2008” (aka the Gas Price Relief Act of 2008).

Anonymous 06/27/2008 1:26pm

Someone please tell me how this legislation is going to stop foreign company from outbidding us…

Anonymous 06/29/2008 8:31am

Peak Oil

holmesworcester 06/28/2008 7:32am

Probably the only sure-fire way long term to get “$2 gas” is to get vehicles that use half as much gas.

The Volkswagen golf diesel they sell in Europe gets 70mpg. $5 diesel for one of those costs $2.50 compared to a 35mpg car.

Anonymous 06/27/2008 3:20pm
in reply to Anonymous Jun 27, 2008 10:56am

Well I watched a Republican named Westmoreland yesterday on C-span. He said gas prices would drop 50% on the news that drilling for oil was approved. www.house.gov/westmoreland

Also I just read a news statement made by an Iranian oil minister who said the high prices were fear based on future expectations, and on the problems of the us economy.

Anonymous 06/26/2008 4:24pm

I wonder how our powerful congress going to enforce this legislation overseas? Maybe we can stop Chinese subsidy while at it too.

Anonymous 06/27/2008 6:26am

The legislation regulates overseas trading companies.

The bill goes after open interest, the volume of trades. Speculators make the market run. they will cover trades no one else will; if open interest and volume go down, you’ll see oil double. $300 a barrel is on the way.

Trying to tie oil into the food problem, created by lobbyists wanting to buy more food with Congress, was a mistake. You can see the food commodities doubled and now oil is and both are going higher either way. This happened in one year. The five year ‘emergency sustainable budgets’ for food and other programs have become the norm for agencies, who’s budgets are now five years also; why would anyone be confused that food doubled when the lobbyists wanted five year ‘sustainable budgets’ and got it this year? Maybe these programs and agency budgets, all these budgets doubled and double again in five years(1st year budget is doubled on the fifth year after doubling initially every five years) had something to do with the prices?

Yes, prices went up; look at the demand and it was Congress and the lobbyists doubling program budgets and agency budgets over a longer commitment, some are on their second five year cycle, so why would someone think prices would go up? Double the money, longer commitment and more agency employees as part of the program.

Congress and the lobbyists have spent way too much over too long a time and we have to pay this. Food might be in demand. The oil tie in was funny, please, we know who ran up the price. The natural disasters occurred right around the five year ‘emergency sustainable budgets’ time in Congress.

Maybe someone is trying to tell us that’s too much money over too long a time and there is no such thing as an ‘emergency five year sustainable budget,’ unless you want a law waived on employee term limits and a new five year budget for your agency.

Anonymous 06/27/2008 5:26pm

There is a car that runs on air.

There is a car that runs on water.

Anonymous 06/28/2008 9:17pm

Brain Maggot: I would not trust congress to regulate the gas from my a** only we can get ourselves out of and i hope to good they all burn in hell for what they have done to this country. we the people need to take matters into our own hands and stop the insanity the only way to do that is to hold our leaders accountable for there actions. they work for us gravy train over boy’s and girl’s we have cells waiting for you just keep going business as usual dig us a deeper hole but know accountability is coming

Anonymous 06/29/2008 3:22pm
Link Reply
+ -1

Regulating the contracts will just make the price go up. If a producer doesn’t have a way out of a futures contract, except delivery of the commodity – he won’t sign the contract. If he can’t get out of the contract with too big a penalty – he won’t sign the contract. The UN was mad that traders pulled out of futures contracts with a penalty. These were farmers who decided they would rather make the money than honor the contract. Not paying the penalty and delivering the goods in the cash market would have been idiotic. Increasing the penalty for not honoring the contract or increasing margins to 50% will just kill the futures and cash markets. Prices will just go higher much faster. The producer of the commodity is just going to tell you to go plant some oil and get it out of the ground. Congress should dig some wells and the UN should start planting some rice. A speculator is going to laugh and wonder why you tried to steal the farm.

Anonymous 06/30/2008 8:16am
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+ -1

Stop interfering with the market!

In spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose … be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society….Adam Smith

Anonymous 06/27/2008 1:29pm
Link Reply
+ -1
in reply to Anonymous Jun 27, 2008 10:56am

And every democrat that says solar and wind will lead you to paradise is also lying. This is probably bigger swindle, brought to you by the same guys that brought us MTBE in gasoline…

Anonymous 06/27/2008 6:24pm
Link Reply
+ -2

You know, I was just thinking earlier today that more government regulation was just what the market needed. “I’m from the government, and I’m here to help.” HaHa!

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