The Problem

Increasingly over the past few years, a growing group of financial players with no direct stake in the physical delivery of oil has exercised undue and unchecked influence on the price of oil, causing great pain for consumers and wreaking havoc on American businesses of all kinds - including airlines and their customers. The fundamentals of oil supply and demand are no longer adequate to predict the true price of oil. Excessive speculation in the commodity markets must be brought under control in order to protect market users from fraud.

What is causing the high price of fuel?

The oil price bubble is unfairly taxing American families and restricting our nation's economic potential through higher gasoline and heating oil prices. In the past 15 months, the price of a barrel of crude oil has gone from $57 dollars in March of 2008 to more than $147 dollars in July 2008, and then back down to less than $32 in December. Oil is climbing again and closed at more than $72 in mid-June. There is mounting evidence that the run up in oil and gas prices is not a result of the fundamental concept of supply and demand, but is largely driven by excessive speculation.

According to data from the Energy Information Administration, demand for petroleum products in the United States is lower today than it was 10 years ago and supply is higher today than it was in 1982. In addition, the International Energy Agency recently predicted that global demand for oil will drop by about 2.5 million barrels a day this year compared to last year, including a drop of one million barrels a day in the U.S. alone.

Despite an adequate supply of oil and decreasing demand, prices are going up, not down. This could not come at a worse time, as Americans are suffering through the worst economic crisis since the Great Depression. Every time you buy products such as food or gas, you are impacted by unregulated, dark and often foreign commodities futures markets. Speculators in these markets increasingly buy and sell commodities such as oil to sell again, rather than to use. As largely unregulated speculators pocket billions of dollars at your expense, the price of commodities increases out of proportion to marketplace demands.

Clearly, we have a responsibility to do everything possible to achieve a balanced energy policy, including ensuring adequate supply, increasing conservation, investing in alternative fuels, as well as making sure that unregulated markets are monitored to stop excessive speculation now.

As speculators continue to dominate the market, the volume of oil traded "on paper" has been as high as 22 times greater than the volume of oil consumed. As prices rise, institutional investors have become active traders, turning commodities into just another asset class. This has caused a severe market imbalance and upset the natural relationship between supply and demand. As a result, legitimate customers such as trucking companies, airlines and consumers have been forced to purchase oil at unnecessarily higher prices. This has dramatically raised costs, resulting in needlessly high prices for American consumers and businesses.

How do they get away with that?

Over the last 20 years, commodities markets have become increasingly less regulated. Today, as many as 90 percent of all commodities trades occur outside of the traditional marketplace exchanges. In these so-called "swaps trades," parties secretly buy and sell commodities with absolutely no one watching. This means speculators can manipulate oil prices and corner the market without anyone knowing.

In addition, other loopholes exist allowing increasingly sophisticated speculators to take advantage of consumers. For example, in 2000 Enron lobbied policy makers to permit some U.S. commodities exchanges to operate without normal oversight. This has allowed some speculators to dodge public disclosure rules that would normally limit the number of trades an investor can make.