Excessive speculation in commodities markets helped create the economic crisis and plays a significant role in fuel price run-ups, and needs to be brought under federal control. That was the message to Congress yesterday from a coalition of commodities consumers,
Excessive speculation in the commodities markets plays a significant role in the run-up of diesel fuel prices, said Randy Mullett, Vice President of Government Relations and Public Affairs at Con-way.
including American Trucking Associations.
"One year ago, oil cost $42 a barrel. Today, oil has jumped to $74. Yet during this past year, global demand remained weak, crude oil inventory in storage was well above average, and the dollar declined by only 8 percent relative to the Euro," said Randy Mullett, Vice President of Government Relations and Public Affairs for Con-Way, and a spokesman for ATA. "In the face of these market realities, excessive speculation is the only other variable left unaccounted for."
Mullett was one of a group supporting an effort by Sen. Maria Cantwell, D-Wash., to draft a law that would establish tougher regulation of derivatives trading.
"Unregulated and highly leveraged gambling in derivatives (was) a major contributing factor in a financial crisis that has now become an economic crisis," Cantwell said. "Reining in the dark derivatives market is key to getting capital flowing to community banks and small businesses."
The House has passed legislation that would reform financial regulation, but it leaves loopholes that would allow excessive speculation to continue, Cantwell said. She said she is working with the Senate Finance and Agriculture Committees to draft a tighter bill.
ATA and the other members of the coalition want Congress to strengthen the Commodity Futures Trading Commission. The aim should be to make commodity derivative markets more transparent, Mullett said. Also, the government should establish position limits for traders in all markets, including over-the-counter markets and foreign exchanges, and the CFTC should tighten the definition of who qualifies as a commercial participant in a commodities trade.
"In petroleum markets, a commercial participant must take physical possession of a petroleum product," Mullett said. "The trucking industry typically hedges diesel fuel by purchasing heating oil and crude oil derivatives. Recognizing these hedging surrogates is important in determining the status of various commercial participants. At the same time, those that seek to hedge against inflation by purchasing petroleum derivatives contracts should not be considered commercial participants, as these so-called hedgers are more akin to pure speculators."
Mullett was joined by other members of the Derivatives Reform Alliance: Michael Masters of Masters Capital Management; Roger Johnson, President of the National Farmers Union; Paul Cicio, President of the Industrial Energy Consumers of America; Brother Dave Andrews of Food & Water Watch, a community organizing group; and Sean Cota, Cota & Cota Oil, a Vermont-based fuel oil company.
For more detailed coverage, see the next issue of HDT.