Michael Masters, portfolio manager of the Masters Capital Management hedge fund, thinks Americans are getting hosed at the gas pump.
According to Mr. Masters and others, including Fadel Gheit of Oppenheimer & Co., Edward Krapels of Energy Security Analysis and Roger Diwan of PFC Energy Consultants, the price for a barrel of oil would begin to fall almost overnight if Congress were to write legislation to remove speculators from the energy futures market.
In testimony before the House's Subcommittee on Oversight and Investigations this week, Mr. Masters suggested that the price of gas would be halved in a month's time if the Commodities Futures Trading Commission (CFTC) was empowered to close the so-called Enron and London loopholes.
According to the CFTC, speculators now represent 71 percent of the oil futures market compared to 29 percent in 2000. In that time, commodity index speculation grew from $13 billion to $260 billion over that period.
"Record oil prices are inflated by speculation and not justified by market fundamentals," Mr. Gheit told MarketWatch. "Based on supply and demand fundamentals, crude-oil prices should not be above $60 per barrel."
Sen. Byron Dorgan (D - ND) told The Christian Science Monitor, "The [commodities] market is broken. It doesn't work. It is full of speculators and what they're interested in is to drive up the price. They don't give a rip about the damage to the economy."
This month, the CFTC launched an investigation to determine how much of an impact speculators have on the price of oil. The move represents a shift for the CFTC, which had maintained that speculation was not behind the run up in oil prices.
Others agree with the CFTC's previous view on the issue.
"There's no evidence of speculative influence. Speculators are not contributing to the demand for physical oil as they almost always roll positions prior to delivery," said Craig Pirrong, a member of the CFTC energy markets advisory committee and a professor of finance at the University of Houston.
Mr. Masters disagrees. "Even though speculators are not hoarding actual commodities, they have the effect of driving up the price for consumers around the world because of the linkage between the commodities market and the spot market," he said. "They have the same effect on price as if they were buying real physical commodities."
Discussion Questions: Is it possible that the recent run-up in gas prices is largely due to factors other than traditional supply and demand? Is it time for Congress to pass regulations to restrict speculation in the oil futures market? What impact would this have on retail operations and consumer product manufacturers?
The Petroleum Marketers Association of America (PMAA), a federation of 46 state and regional trade associations representing roughly 8,000 independent petroleum marketers across the country, has been vocal in its call for Congress to close the loopholes. The PMAA created a separate website called Stop Oil Speculators (www.stopoilspeculators.com) to draw attention to the problem as it sees it.