As the price of crude oil hit $100 a barrel in futures trading on the New York Mercantile Exchange last week, U.S Congressman Bart Stupak (D-Mich) renewed his call for action on legislation he has introduced, which experts estimate could lower the cost of oil by $20 to $30 a barrel.
H.R. 594, the Prevent Unfair Manipulation of Prices (PUMP) Act would close the so-called 'Enron loophole' and require dark-market energy trading to subject to the same rules and government oversight as regulated markets.
"As oil prices continue to climb, families across the country are being hit hard by rising fuel costs," Stupak said. "People don't mind paying a fair price for a product, but a price that is being manipulated by speculators is not fair. These high prices are more than just supply and demand."
According to AAA, gas prices in Michigan are averaging $3.10 a gallon, 85 cents higher than the same time last year. Some economists estimate that if oil prices continue at this pace, consumers could see gas prices at $3.60 to $4.00 a gallon as they head into the summer. An economist quoted in the Jan. 3rd Wall Street Journal noted that the price of gasoline increases an average of 19 cents for every $10.00 increase in a barrel of oil.
"Oil prices are based on speculation and fear, fueling greed and higher prices at the pump," Stupak said. "It used to be that energy futures traders were individuals looking to take delivery of the product. But thanks to the 'Enron loophole', today the market is being gamed by hedge fund managers and speculators looking to make a profit at the expense of hard-working Americans."
While political turmoil in oil-producing countries contributed to the price increase, Stupak notes that trading on unregulated markets is also a significant factor. The PUMP Act would reduce the effect unregulated speculation has on energy prices. While it is difficult to determine the precise impact speculators have on oil prices, in a Dec. 12, 2007 hearing of the Oversight & Investigations Subcommittee that Stupak chairs, it was estimated that the PUMP Act would reduce the price of crude oil by as much as $20 to $30 a barrel.
"As much as half of energy trading occurs without transparency and without oversight," he notes. "Speculation and market manipulation in the energy futures market can crate a snowball effect and consumers ultimately pay the price when they are heating their home or putting gas in their car.
There are currently two types of oil futures trading. Market trading takes place through the New York Mercantile Exchange and is overseen through the Commodity Futures Trading Commission. However, an increasing amount of oil futures trading occurs 'over-the-counter'. This trading is difficult to determine whether traders are basing their trades on market realities or just gaming the markets to drive up prices.