Dorgan calls for action on crude oil speculation
BISMARCK -- The federal government should stop burying the highest quality oil in an underground reserve and quit making it easy for speculators to drive up crude prices, Sen. Byron Dorgan, D-N.D., said Friday, echoing a demand Gov. John Hoeven m...
BISMARCK -- The federal government should stop burying the highest quality oil in an underground reserve and quit making it easy for speculators to drive up crude prices, Sen. Byron Dorgan, D-N.D., said Friday, echoing a demand Gov. John Hoeven made a week ago.
Dorgan said Congress can act on those issues to ease oil and gasoline prices.
Crude oil has gone from about $65 per barrel in April 2007 to $126 per barrel on Friday.
The Senate will vote Tuesday whether halt deposits of nearly 70,000 barrels a day of light, sweet crude into the nation's Strategic Petroleum Reserve. While the amount is only a small percentage of the 21 million barrels a day the U.S. consumes, it's the most valuable subset of crude, Dorgan said, and its absence from the market has a disproportionate affect on prices--as if it were 10 percent of daily production.
"It makes no sense that our federal government is buying $120-a-barrel oil and putting it underground into a reserve that is 97 percent full," Dorgan said. The reserve is supposed to hold 700 million barrels when full.
On May 2, Hoeven had asked Energy Secretary Samuel Bodman to discontinue adding to the Strategic Petroleum Reserve "to help take the pressure off crude oil prices until our consumers, farmers and businesses see some relief from the high fuel prices."
Dorgan also said Friday Congress needs to change laws that allow oil speculators to invest in oil futures on a 5 percent to 7 percent margin; that is, they can take ownership of oil stocks with only 5 percent to 7 percent of the purchase in cash. In the stock market, investors must pay at least 50 percent to buy on margin, Dorgan said. Hedge funds and investment banks are buying oil storage so they can take it off the market and wait for the price to go up, he said.
It's been "an open invitation" for speculators, he said, and created a bubble of speculation on the oil commodity exchange. Congress needs to increase the margin requirement because "the Commodities Futures Trading Corp. is doing its best imitation of a potted plant," Dorgan said.
Dorgan's not alone in charging that oil prices can be blamed on speculation. A week ago, Hoeven asked Bodman to investigate and take appropriate action on suspected market manipulation.
The charge also has come from oil companies themselves and economists in recent months.
"The price of oil should be about $50-$55 per barrel," Exxon Mobil Senior Vice President Stephen Simon told the U.S. House on April 1.
"There is absolutely no shortage of oil. I'm absolutely convinced that oil prices shouldn't be a dime above $55 a barrel," said an Oppenheimer & Co. energy analyst, Fadel Gheit, last October in a Fort Worth Star-Telegram article. He called the rampant oil market "the world's largest gambling hall" or the equivalent to a highway "with no cops and no speed limit and everybody's going 120 mph."
Janell Cole works for Forum Communications Co., which owns The Dickinson Press.