Skyrocketing Energy Prices

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.

Crossposted at MichiganLiberal.com.

Comments

[KillTheMessenger]

Senator Levin... your post is very short sighted in the following sense. Let's say that it is not speculation but geology and demand which are driving the price of oil, none of your recommendations will make any difference and they are actually counterproductive.

Once Senator Obama gets elected for president YOU have to come up with something that can actually turn the dependence of the US on foreign oil around. That something is called GAS TAX. If you like it or not, there will be a period of very painful changes in the US and YOU will have to make them happen. But for that you need a prepared electorate. The longer you keep the inevitable from the people and the more you feed into the speculator conspiracy theory, the harder it will be for YOU to make the changes that this country need. But if you fail, the US at the end of the term of Senator Obama will still see $8-10/gallon gas but without any upside from a rigorous gas tax. And then the Republicans will blame YOU for having done nothing and the country will circle the drain a little faster.

[KillTheMessenger]

And no mention of peak oil. Yet another proof of how brain dead the political cast is. You can blame this one on speculators all you want... none of that will stick and none of it will help. Every oil geologist on this planet knows the truth (and most will tell you about it if you ask them). Drilling for easy oil is over. Which means that the rate at which we can produce oil is now limited and close to peak. No matter how many straws we poke into the crust of the planet and no matter how many technical improvements we make, oil will flow at a lower and lower rate in the near future. At the same time there are more and more people who can afford to buy oil and gasoline at almost any price. And because there is an increasing number of people in Europe and China who have more money than most people in the US, gas will keep rising.

[RoloTomassi]

Speculation is EXACTLY the problem, and if you had a better understanding of where we are in the US and on a global level with oil supplies then you would understand that we are NOT HELPLESSLY at the mercy of OPEC, unless we buy into this shell game.

[veracitatus]

Here Rolo. Here is a 'better understanding'.

http://www.theoildrum.com/

Educate yourself first and put your ideological wishes aside.

V.

[vipersdad]

The higher energy prices have generated a renaissance of alternative energy thinking. So that we don't lose that momentum, we have to have alternative energy incentives that make it silly to NOT move that direction. As an example, today, only people of upper-middle-class can even come close to affording Solar on their residences. More tax breaks and rebates can go a long way to ignite both the investment in this area as well as the R & D needed to make solar more affordable. That's only one example. We constantly hear the drone of financial "experts" who talk about the economics of alternative energies vs. petroleum as if the playing field is really level. It is imperative to take the "welfare" away from the legacy fossil-fuel based energy companies and push that same money as "strategic investment" capital toward emerging and renewable energy sources.

Oh - one more thing - this "energy bubble" in the market will burst. As you said - much of the problem here is irresponsible speculation. If we learned nothing from the investment nighmares of the past 10 years ("dot-bomb," sub-prime, housing bubble, etc...) it's that these corrections come at a terrible price to the American citizenry.

[KillTheMessenger]

Solar energy and oil consumption have almost nothing to do with each other. Please read up on the difference between transportation fuels and solar electricity and why solving one problem will do absolutely nothing for the other.

[RoloTomassi]

Senator Levin:

Your comments are spot on, and reflect what I've been posting here at HuffPo for some time now. The Fridemanite Free-market traders and the Big Oil shills start foaming at the mouth when anyone suggests that profits are disproportionately high or that anything at all is amiss with current oil prices.

We desperately need the regulation that you speak of--certainly for oil an other energy resources, but also in many other areas where the Friedman deciples would drive the boom to bust everytime, sands necessary regulation.

The great Republican experiment in economics has failed miserably, and we need a return to true Keynesianism to get the US economy back on track, or at least moving in an upward direction.

[KillTheMessenger]

If you think the good Senator is spot on, you might want to check out reality. Google "peak oil", strip away all the survivalist and end of times babble that comes with the territory and learn why geology and exponential demand growth lead to a production peak in world oil production. And why that production peak has been in 1970 in the US and is now worldwide. Then come back and congratulate the Senator on how well he has misled you about what is really going on to score a few cheap political points.

[RoloTomassi]

Go work in the oil patch a few years and learn the reality that lies underneath your "truth" about "peak oil," then you can come back and have a conversation with me when you know what the hell you're talking about.

Peak oil will happen, but right now it is a BS excuse used as a means of profiteering, and being on the outside of the reality leaves you with limited understanding of the situation. The US could do what many others are already doing, which is to make opening up all domestic supplies and make them available for short term production [and if you really believe that such supplies are sufficient to carry this nation for a few years--at the very least--then you are too misinformed to even have a relevant opinion].

We have the resources to counter this blatant oil profiteering, and in the meantime we could pour a lot of R&D into alternative resources.

But as long as we have misinformed idiots running about screaming PEAK OIL and influencing the situation with such nonsense, then we will continue to flowder.

[RickO]

Instead of a gas tax holiday, why not a speculation holiday?

[KillTheMessenger]

Congress and Senate have been on leave from reality for at least the last decade.

[avicenna]

And McCain and Hillary think the solution is a "gas-tax holiday" - absurdity reigns supreme. I'd love to see Obama suggest a rebate for everyone who buys a summer transit pass. Can you imagine the relief during the sweltering summer days to have all those cars off the highway and more people getting around by foot and their local transit system for free? That's the kind of change we need - the kind that promises fresh air instead of hot air that suffocates.

[hopeless277]

Senator Levin,

Who are your top 10 campaign donors? I see. So you're going to be the first member of congress in the entire history of this country to bite the hand that feeds you? Yeah, right. Sorry, Carl, we've been down this road before. Better luck next time.