A new series of Senate hearings are planned on the impact of commodity speculation on oil prices after a new report released today claimed the sharp decline in oil prices since July 15 was the result of a sell-off of positions in commodity index funds by pension funds and other institutional investors.
The report, released at a Capitol Hill news conference with Sens. Byron Dorgan, D-N.D., and Maria Cantwell, D-Wash., charges that a mass stampede for the exits by institutional investors from the S&P Goldman Sachs Commodity Index helped fuel a $35-a-barrel decline in the price of oil from its July high of $145 a barrel.
When index speculators pour large amounts of money into the commodities markets and buy large amounts of futures contracts, prices go up, said the report, written by Michael Masters, portfolio manager of Masters Capital Management, a long/short hedge fund, and Adam K. White, director of research at White Knight Research & Trading. When they pull large amounts of money out and sell large amounts of futures contracts, prices go down. These large financial players have become the primary source of the recent dramatic and damaging volatility seen in oil prices.
The House Agriculture Committee on its website announced it will hold a hearing on Thursday to review dramatic movements in agriculture and energy commodity markets. Walter Lukken, acting chairman of the Commodity Futures Trading Commission, will appear at the hearing.
Mr. Dorgan, who chairs the Senate energy subcommittee, is planning his own hearing on speculation in energy commodities on Sept. 16, said Justin Kitsch, a spokesman for the senator.
There are a lot more questions than answers out there about how oil speculators were able to drive prices up and down, while the CFTC was asleep at the switch, said Mr. Dorgan, in a news release. But what we do know from all of this is that energy speculation exists, it has hurt consumers, and the Congress needs to pass legislation immediately to stop oil speculation.