This afternoon, I'm speaking on the Senate floor about high energy prices. Unless something is done to make energy more affordable, the record-high prices will continue to reverberate throughout our economy, increasing the prices of transportation, food, manufacturing and everything in between. Skyrocketing energy prices are a threat to our economic and national security, and the time for action is long past.
One of the major causes of our energy crisis is the failed policies of the current administration. In January 2001, when President Bush took office, the price of oil was about $30 per barrel. The average price for a gallon of gasoline was about $1.50. Since President Bush took office, crude oil prices have nearly quadrupled, natural gas prices to heat our homes have almost doubled, gasoline prices have more than doubled, and diesel fuel prices have nearly tripled.
One key factor in price spikes of energy is rampant speculation in the energy markets. Traders are trading contracts for future delivery of oil in record amounts, creating a paper demand that is driving up prices and increasing price volatility solely to take a profit. Overall, the amount of trading of futures and options in oil on the New York Mercantile Exchange (NYMEX) has risen six-fold in recent years, from 500,000 outstanding contracts in 2001, to about 3 million contracts now.
Speculators in the oil market do not intend to use crude oil; instead they buy and sell contracts for crude oil just to make a profit from the changing prices. Many speculators simply buy and hold whole baskets of commodities including energy commodities, just like other speculators hold a variety of stocks in a mutual fund, in the expectation that prices will continue to rise. The number of futures and options contracts held by speculators has gone from around 100,000 contracts in 2001, which was 20% of the total number of outstanding contracts, to 1.2 million contracts currently held by speculators, which represents almost 40% of the outstanding futures and options contracts in oil on NYMEX.
In January of this year, as oil hit $100 barrel, Mr. Tim Evans, oil analyst for Citigroup, wrote "the larger supply and demand fundamentals do not support a further rise and are, in fact, more consistent with lower price levels." The president and CEO of Marathon Oil recently said, "$100 oil isn't justified by the physical demand in the market. It has to be speculation on the futures market that is fueling this."
My Senate Permanent Subcommittee on Investigations has conducted four separate investigations into how our energy markets can be made to work better. Last December, we had a joint hearing with the Senate Energy Subcommittee on the role of speculation in rising energy prices. As a result of these investigations and hearings, for several years I have been advocating a variety of measures to address rising energy costs and the rampant speculation and lack of regulation of energy markets which have led to sky high energy prices:
• Put a cop back on the beat in the energy markets to ensure these markets are free from excessive speculation and manipulation;
• Stop filling the Strategic Petroleum Reserve until prices are lower;
• Develop alternatives to fossil fuels to lessen our dependence on oil; and
• Impose a windfall profits tax on oil companies that have profited from the unjustified price increases.
Because the administration has proved itself unable and unwilling to take the necessary steps to provide affordable energy supplies to the American people, it is up to the Congress to try to jumpstart a comprehensive solution to skyrocketing energy prices.