Congress Targets Oil Speculators

As gas prices continue to rise, lawmakers have been getting an earful about it from their constituents. Members of Congress are anxious to show their concern so they have begun to investigate oil speculators. NPR's Scott Horsley speaks with host Andrea Seabrook.

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ANDREA SEABROOK, host:

Crude oil prices ended last week at a record high of more than 140 dollars a barrel. For consumers, that means no relief at the gas pump where prices in most parts of the country are well over four dollars a gallon. Here in Washington lawmakers have been getting an earful about high gas prices, and they're anxious to show their concern.

Lately, they've been laying a lot of blame for high energy prices at the feet of a culprit - oil speculators.

NPR's Scott Horsley joins us now from San Diego. Scott, hi.

SCOTT HORSLEY: Good to be with you, Andrea.

SEABROOK: Scott, speculators have been in the spotlight, or should I say in the crosshairs here in Washington this week, what's going on?

HORSLEY: Yeah, it seems like just about every day, there was another hearing focused on what role speculators are playing in the oil market. On Thursday, the House voted overwhelmingly to give federal regulators a mandate to curve speculation in the market.

Over on the Senate side, Byron Dorgan has a bill pending that would make it harder for speculators to use borrowed money when they're buying oil contracts. Right now you can buy a futures contract on the oil market with less than ten percent down and use borrowed money for the rest.

SEABROOK: Wow.

HORSLEY: Senator Dorgan wants to rein that in. There are other proposals to curb speculation. One would say you can't buy a futures contract for oil unless you actually have someplace to put it, which would certainly take away from the financial players in the oil market - the hedge funds.

SEABROOK: That means I can't buy any.

HORSLEY: Absolutely not. But there have always been financial players in the oil market who really have no interest in taking delivery of the oil. These are hedge funds or pension funds or others who just are making a bet that the price is going to go up.

SEABROOK: Okay, so if they've always been there, how much of a role could they possibly be playing in driving up the cost of the oil?

HORSLEY: Yeah, this is the big question. There's no question that financial players have a larger presence in the oil market right now. By one estimate, 70 percent of the trades are now made by financial players rather than traditional buyers and sellers who actually want the oil.

But there's considerable debate about whether that's actually driving up the price. I've talked to some smart economists who say there is no connection between that growing role of speculators in the market and the higher prices. One said - to conclude that because there's more speculators they're driving up the price would be like noticing that there's a lot of sick people and a lot of doctors at the hospital so the doctors must be causing all that extra sickness.

That said though, this market is not very transparent. A lot of happens sort of behind closed doors and off the radar screen. And that always breeds suspicion so the Commodity Futures Trading Commission has taken some steps to get better intelligence about just what's going on.

SEABROOK: Okay, so if all these regulators and smart analysts and stuff say that it's not actually the speculators who are at fault, why are the lawmakers in Washington piling on?

HORSLEY: Well the cynical answer is they feel like they've got to do something. They don't want to feel powerless and it's easier to blame speculators than to look in the mirror and say we ought to be driving less or getting more efficient cars or making some long-term strategic moves.

SEABROOK: Is also drilling for more oil another possibility?

HORSLEY: Yeah, I mean I sound like a broken record. There's only two things we can do in the long run: that's use less or get more. And more supply doesn't happen overnight, but you could boost supply in the long run. Demand is easier to control in the short run. And in fact, Americans have been buying less gasoline.

They bought about two percent less gas in the last month than they did in the same period a year ago. One piece of good news for consumers, Visa agreed to reduce the transaction fees they've been charging when you gas up at the pump. With the way prices are, a lot of people are using plastic to finance their gasoline purchases.

As the credit card fees come down, that money will initially go to the retailers who have been screaming bloody murder about this, but eventually some of those savings might be passed along to you at the gas pump.

SEABROOK: Local gas station by my house has signs on the pump that say, to our dear customers, we have no control over the gas prices. Thank you, keep coming back.

NPR's Scott Horsley. Thanks so much for speaking with us.

HORSLEY: My pleasure, Andrea.

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