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Are Oil Traders Driving Up Prices?

MADELEINE BRAND, host:

From the studios of NPR West, this is Day to Day. I'm Madeleine Brand.

ALEX COHEN, host:

And I'm Alex Cohen. Today, President Bush is asking Congress to lift the longtime ban on offshore oil drilling.

BRAND: Gas prices are four dollars a gallon. They're careening toward five dollars. Here's the president speaking this morning.

President GEORGE W. BUSH: High oil prices are at the root of high gasoline prices. Behind those prices is the basic law of supply and demand. In recent years, the world's demand for oil has grown dramatically. Meanwhile, the supply of oil has grown much more slowly.

BRAND: But what if it's something else, something besides supply and demand that's causing oil prices to rise? What if it's speculation by commodities traders? Senator John McCain raised that possibility in a speech yesterday in Houston.

Senator JOHN MCCAIN (Arizona, Republican): We all know that some people on Wall Street are not above gaming the system. When you have enough speculators betting on the rising price of oil, that itself can cause oil prices to keep on rising.

COHEN: Several of McCain's fellow senators expressed similar sentiments yesterday at a hearing on Capitol Hill, where the subject was regulating the oil speculators. The relationship between speculators and oil prices is a tricky one, one that we're tackling today on this program, and we begin with NPR's David Welna, who was at yesterday's hearings. He brings us this report from Washington.

DAVID WELNA: Illinois Democratic Senator Dick Durbin gaveled in the hearing on speculation, admitting the hearing itself might entail a fair amount of speculation.

Senator DICK DURBIN (Democrat, Illinois): No one knows for sure what's going on here. That's why we're conducting this hearing.

WELNA: The Agriculture Committee teamed up with an appropriations subcommittee for the hearing. Both panels oversee the Commodity Futures Trading Commission, which was set up 33 years ago to regulate the buying and selling of commodities such as oil on dates in the future. Walter Lukken, who's the commission's acting chairman, was there and got some stern lecturing from Durbin.

Senator DURBIN: There's been a lot of speculation about speculation and what impact it has on the price of oil. The honest answer is today, Chairman Lukken, you don't have enough information.

WELNA: Lukken readily admitted the CFTC simply doesn't know what's going on with a lot of futures trading. While its staff is at a historic low, he said, such tradings increased a whopping 8,000 percent. Lukken also allowed there could be some price fixing going on that's not yet been discovered.

Mr. WALTER LUKKEN (Acting Chairman, Commodity Futures Trading Commission): During these turbulent market conditions for crude oil, the environment is ripe for those wanting to illegally manipulate the markets. And as a result, the commission has stepped up its already aggressive enforcement efforts.

WELNA: And for that, he asked Congress to give the CFTC another 27 million dollars next year to hire 100 more regulators. This did not seem to please Georgia Republican Saxby Chambliss, who insisted the solution is not more regulation.

Senator SAXBY CHAMBLISS (Republican, Georgia): Particularly when the main problem is supply and demand. In this case, the data that I have seen so far does not show that blaming speculators will yield the result that we're all looking for, and that is lower gas prices.

WELNA: The Kansas Republican Sam Brownback applauded beefing the CFTC.

Senator SAM BROWNBACK (Republican, Kansas): Because it sure looks like to me there's a lot of speculation in these prices, and I get that from just what it looks like around but also from a number of knowledgeable people coming in and saying well, the fundamentals don't support these prices.

WELNA: One of those knowledgeable people is Exxon Mobil Vice President Stephen Simon, who said this to another Congressional panel in April, when oil was already selling above 100 dollars-a-barrel.

Mr. STEPHEN SIMON (Senior Vice President, Exxon Mobil): When you look at the fundamentals of our business, Congressmen, the supply-demand fundamentals, our assessment would be that price should be somewhere around 50, 55 dollars a barrel.

WELNA: The Exxon Mobil executive put the blame for the much higher oil prices on speculators. But CFTC Acting Chair Lukken would not go there.

Mr. LUKKEN: We're trying to see if speculators are driving the prices. We have not seen evidence from our data. It's difficult to prove a negative. And we certainly encourage those that are saying this, if, you know, where the prices should be and that speculators are doing this, to provide the data so that we can look at it and make an informed decision. But currently, now, we have not found a smoking gun.

WELNA: Lukken told the senators he's requesting more data from oil futures traders and will have a full report for Congress on his findings by mid-September. David Welna, NPR News, the Capitol. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

David Welna is NPR's national security correspondent.
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