WASHINGTON - The U.S. futures market regulator on Thursday told skeptical members of Congress that speculators were not responsible for pushing crude oil prices to record highs, but one lawmaker warned that commodity markets had become casinos.
Market fundamentals such as strong oil demand in China and India, a weak U.S. dollar and geopolitical tensions in big oil producing countries "provide the best explanation for crude oil price increases," Commodity Futures Trading Commission (CFTC) Chief Economist Jeffrey Harris told a Senate panel's hearing.
Harris said his agency, which regulates futures markets, has seen "little evidence that changes in speculative positions are systematically driving up crude oil prices."
Many senators on the Energy and Natural Resources Committee disagreed, saying hedge funds and other speculators had pushed up oil prices.
"There is an orgy of speculation in the futures markets," said Democrat Byron Dorgan. "This is a 24-hour casino with unbelievable speculation."
At the hearing on what's behind skyrocketing crude costs, Dorgan said about 20 times more oil is sold daily in the futures markets than actually exists.
As crude has surged above $100 a barrel, the number of outstanding oil futures contracts at the New York Mercantile Exchange has soared from about 1 million contracts in 2004 to over 2.8 million in the most recent week, Harris said.
But the economist said the share of outstanding NYMEX oil contracts held by speculators has increased only marginally -- from 31 percent to about 37 percent over the last three years.
He said the NYMEX oil futures market has had a steady ratio over the last 22 months between about 310 noncommercial, or speculative, traders and about 120 commercial traders such as oil companies or airlines that need to hedge fuel costs.
Despite the CFTC's reassurances, lawmakers from both parties expressed concern about rollicking futures trading.
"I'm not sure things are hunky-dory," Pete Domenici, the top Republican on the Senate energy panel, told Harris.
Sean Cota, who heads a heating fuel dealers trade group, told lawmakers the amount of money speculators are required to put up to trade oil futures should be increased.
"It has become apparent that excessive speculation on energy trading facilities is the fuel that is driving this runaway train in crude oil prices," Cota said.
"Hedge funds and investment banks are not driven to provide U.S. citizens the most affordable energy supplies; they are driven to profit from volatility," Cota said.
Stock market investors generally are required to keep more cash in margin accounts than futures investors are.
Several committee members supported higher margin requirements for futures trading. But the head of the committee, Democrat Jeff Bingaman, said he did not know if Congress would pass a bill to do so.
Cota urged lawmakers to support a bill that would require traders in oil futures to take actual delivery of the crude, which would effectively chase speculators from the market.
Chances of passing that bill, sponsored by Rep. John Larson of Connecticut, during this election year were unclear.
Market fundamentals such as strong oil demand in China and India, a weak U.S. dollar and geopolitical tensions in big oil producing countries "provide the best explanation for crude oil price increases," Commodity Futures Trading Commission (CFTC) Chief Economist Jeffrey Harris told a Senate panel's hearing.
Harris said his agency, which regulates futures markets, has seen "little evidence that changes in speculative positions are systematically driving up crude oil prices."
Many senators on the Energy and Natural Resources Committee disagreed, saying hedge funds and other speculators had pushed up oil prices.
"There is an orgy of speculation in the futures markets," said Democrat Byron Dorgan. "This is a 24-hour casino with unbelievable speculation."
At the hearing on what's behind skyrocketing crude costs, Dorgan said about 20 times more oil is sold daily in the futures markets than actually exists.
As crude has surged above $100 a barrel, the number of outstanding oil futures contracts at the New York Mercantile Exchange has soared from about 1 million contracts in 2004 to over 2.8 million in the most recent week, Harris said.
But the economist said the share of outstanding NYMEX oil contracts held by speculators has increased only marginally -- from 31 percent to about 37 percent over the last three years.
He said the NYMEX oil futures market has had a steady ratio over the last 22 months between about 310 noncommercial, or speculative, traders and about 120 commercial traders such as oil companies or airlines that need to hedge fuel costs.
Despite the CFTC's reassurances, lawmakers from both parties expressed concern about rollicking futures trading.
"I'm not sure things are hunky-dory," Pete Domenici, the top Republican on the Senate energy panel, told Harris.
Sean Cota, who heads a heating fuel dealers trade group, told lawmakers the amount of money speculators are required to put up to trade oil futures should be increased.
"It has become apparent that excessive speculation on energy trading facilities is the fuel that is driving this runaway train in crude oil prices," Cota said.
"Hedge funds and investment banks are not driven to provide U.S. citizens the most affordable energy supplies; they are driven to profit from volatility," Cota said.
Stock market investors generally are required to keep more cash in margin accounts than futures investors are.
Several committee members supported higher margin requirements for futures trading. But the head of the committee, Democrat Jeff Bingaman, said he did not know if Congress would pass a bill to do so.
Cota urged lawmakers to support a bill that would require traders in oil futures to take actual delivery of the crude, which would effectively chase speculators from the market.
Chances of passing that bill, sponsored by Rep. John Larson of Connecticut, during this election year were unclear.
