The Speculator's Role in the Oil Market
Monday, June 23, 2008SUZANNE PRATT: Oil prices were on the move higher again today on disappointment over Saudi Arabia's modest increase in output. Crude oil futures settled at $136.74 a barrel, up $1.38, also spurred by production problems in Nigeria. At yesterday's energy summit, the Saudis pledged to pump more oil next month adding 200,000 extra barrels a day. But that didn't impress traders hoping for a larger increase. Meanwhile, surging oil prices took center stage in Washington. That's where, as Stephanie Dhue explains, regulators and lawmakers examined the role of speculators in the energy markets.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Lawmakers worry speculators are driving oil prices higher. The House subcommittee on investigation and oversight found investors now account for the majority of holdings of oil futures contracts. In fact, just 30 percent of contracts are now held by firms that plan to take delivery of oil. That compares with 63 percent in 2000. That trend has Subcommittee Chairman Bart Stupak trying to connect the dots.
REP. BART STUPAK, (D) MICHIGAN: Is it a coincidence that investment banks have tripled the number of futures contracts they are buying at the same time that oil prices are skyrocketing?
DHUE: No coincidence, a panel of energy analysts told lawmakers. Oppenheimer's Fadel Gheit says without speculators, the price would be between $45 and $65 a barrel.
FADEL GHEIT, SR. OIL ANALYST, OPPENHEIMER & CO.: The world has not changed significantly over the last few years to justify $140 and then you have people predicting $200 oil. If we don't do anything about it, their prediction will come true.
DHUE: Hedge fund manager Michael Masters says limiting positions held by pension funds, investment banks and other speculative players could reduce prices by 30 to 50 percent.
MICHAEL MASTERS, PORTFOLIO MANAGER, MASTERS CAPITAL MANAGEMENT: What we're talking about here with speculation, the right terminology really isn't a bubble, it's really more like a tumor. And it grows and grows and grows and in this case, it's hurtful as it expands. So the time to act is before it gets any worse.
DHUE: The Bush administration rejects the argument that speculation is driving prices higher. Instead it says the problem is a supply-demand imbalance. Texas Republican Joe Barton agrees.
REP. JOE BARTON (R) TEXAS: Speculators are not the cause of high energy prices. We have high energy prices because there's less than a one or two percent margin of supply over demand in world markets today.
DHUE: The presidential candidates have also weighed in on speculation and oil prices. John McCain says speculators' role should be investigated. Barack Obama proposes closing loopholes that exempt some energy trading from U.S. regulation. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
