Crude Prices Dip & Congress Digs
Thursday, May 04, 2006SUSIE GHARIB: The price of oil got a little bit cheaper today. In New York trading, June crude futures closed at $69.94 a barrel, down $2.34 or more than 3 percent. Meanwhile, in Washington today, lawmakers focused on what`s fueling high oil and gasoline prices: supply shortages or market speculators. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: How much of how much of what`s happening here is driving up the price here? The chairman of the House Energy and Commerce Committee is worried there may be too many speculators trying to cash in on high oil prices.
REP. JOE BARTON, CHAIRMAN, ENERGY & COMMERCE COMMITTEE: If those participants in the market are a larger percentage than normal, I think it`s a legitimate government function to consider raising the margin requirement to make it more difficult to just purely be speculative in the market.
DHUE: There`s no question investors are playing a larger role in oil markets. Hedge funds, pension funds and other investors have moved aggressively into oil in the past five years. Currently, fewer than 1 percent of futures contracts results in a physical purchase of oil. But the Nymex warns requiring more money up front for futures contracts could be risky.
ROBERT LEVIN, VP RESEARCH, NEW YORK MERCANTILE EXCHANGE: That could lead to a lack of trading and a lack of us able to perform our role. The market would thus suffer and be a lot less transparent.
DHUE: Experts say there`s a $10-to-$15 per barrel risk premium built into the price of crude. Some of that may be driven by speculators. But the experts say the real driver is geo-political risk in oil producing countries.
DANIEL YERGIN, CHAIRMAN, CAMBRIDGE ENERGY RESEARCH ASSOCIATES YERGIN: In this market the threat of, the risk of escalation is enough to send crude oil prices up, and sometimes I think the chief speculator in the oil market today is the president of Iran.
DHUE: With supplies tight, the futures market has been generally heading higher. So much so, that the futures price of oil is higher than the current price in the physical market.
GUY CARUSO, ADMINISTRATOR, ENERGY INFORMATION ADMINISTRATION: This puts another incentive before companies to add to inventories, and the desire to increase inventories adds to current demand, putting additional pressure on prices.
DHUE: Lawmakers are under pressure from constituents to ease their pain at the pump. With mid-term elections looming, energy bills have gained support. But if energy prices head lower, those proposals are likely to be sidelined. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
