Opposing view: Crack down on speculators
The return of $4-per-gallon gas is punishing Americans at the pump and threatening to derail our economic recovery.
Americans are shackled to an uncompetitive and corrupt global oil market — one that is draining wealth from the U.S. economy at a rate of $1 billion a day.
Not everyone is unhappy about this. Big oil companies are posting record profits, while their partners in the Organization of Petroleum Exporting Countries (OPEC) enjoy the benefits of keeping prices high.
Last month, Saudi Arabia announced an 833,000 barrel per day production cut, even as crude prices stood at $123 per barrel. This production cut came on top of the 1.2 million barrels per day of lost Libyan production, a drop the Saudis pledged to cover. Meanwhile, 3.5 million barrels per day — a quarter of Saudi oil capacity — sits idle, producing nothing except higher prices.
We must take action.
First, we must crack down on speculators in the oil market. Speculative money is seeking volatile investments. Since 2003, the size of the oil futures market has increased by a factor of 17. Speculative contracts now far outnumber those held by airlines, oil producers and other companies trying to legitimately hedge against oil price fluctuations.
When this massive speculative market meets manipulators such as Saudi Arabia and OPEC, consumers get gouged. Goldman Sachs has indicated as much as $20 per barrel is due to speculation, not supply and demand. Anyone doubting the volatility and added momentum speculation brings to the market need only look at Thursday's one-day drop of 9% in the price of oil. The oil market should be governed by the principles of supply and demand, not flittering on the whims of speculators.
Second, we must deploy the Strategic Petroleum Reserve. Releasing a small fraction from the U.S. stockpile will send a powerful signal to OPEC and speculators that the U.S. will not be held hostage to price manipulation. The reserve has a proven record of driving down prices. When tapped in 1991, 2000 and 2005, oil prices dropped by 9% to 33%.
Ultimately, competition from other energy sources is the best way to lower gas prices. Building wind turbines, solar panels and electric vehicles and more efficiency will place innovation, not oil, at the center of America's energy policy. We will lower gas prices and create jobs at the same time.
Rep. Edward J. Markey, D-Mass., is the senior Democrat on the House Natural Resources Committee.
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