Policing the Oil Markets

Floor Speech

POLICING THE OIL MARKETS -- (Senate - May 02, 2008)

Ms. CANTWELL. Mr. President, I rise this morning to make sure the American people know that Democrats want to make sure that oil markets are policed. Democrats want to make sure the oil markets are not being manipulated, and Democrats are going to make sure the oil markets, in fact, are going to be policed by the Federal Government.

Over the last several years, several energy companies, including Amaranth, Marathon Oil, and British Petroleum have been under investigation for the manipulation of petroleum and natural gas markets. As a result of that investigation, British Petroleum now must pay approximately $373 million for conspiring to corner the market and manipulate the price of propane carried through the Texas pipeline.

In another example, in 2006, a manipulative scheme to game the natural gas market by the now defunct hedge fund Amaranth, cost consumers upwards of $9 billion. In July of last year, Marathon Oil agreed to pay $1 million in fines to the CFTC to settle charges that Marathon's petroleum subsidy had attempted to manipulate crude oil prices.

So we have examples of natural gas and oil markets being manipulated, and Democrats want to make sure that oil markets are going to be policed. We want to make sure there is not manipulation of supply. We want to make sure there is not false reporting of information. We want to make sure there is not cornering of the market. We want to make sure there is not rogue trading.

That is why I am pleased the FTC has taken at least a first step in issuing a rule that I think will help establish the framework by which these markets can be more thoroughly investigated.

The FTC is recognizing in its rule--the rule that it issued last night--that they need to base this on a law that is about manipulative practices or using manipulative devices. There is a large body of case law starting with the Securities and Exchange Commission now being used by the Federal Energy Regulatory Commission, that has become, as the Supreme Court said, ``a judicial oak which has grown from little more than a legislative acorn.''

What they are talking about is just the simple concept put into Federal statute that you should not have manipulative devices or contrivances as it relates to the stock market, as it relates to commodities, as it relates to now the natural gas and electricity markets, and now, after the FTC's action last night, as it relates to the oil markets.

But Democrats are going to make sure the FTC does its job. I am calling on our leadership to have oversight hearings of this FTC rulemaking process. The American public needs to be in on this process of deciding exactly how this rule is going to be developed. We are going to protect consumers in making sure there is a strong statute on the books. We want to make sure that in this final rule the impact of any kind of manipulative, planned reductions by refineries as a scheme just to reduce supply is covered under this law; that any kind of false or misleading reporting is covered under this law; and that the FTC recognizes the great work that was done by the Federal Energy Regulatory Commission in their adoption of this rule.

In fact, the rule that is being put out by the FTC actually discusses in detail the cases of Amaranth and Enron, which I think is a good sign because it is in those cases that we learned exactly how the manipulation of these markets takes place.

In fact, what we saw with Amaranth and what they did is they ended up selling shares to try to crash the market to lower the price after they already had contracts for a higher price. So they made money by basically getting people to sign up for contracts at a higher expense and then forcing the market to lower the price so they had a higher profit margin. They ended up having a huge position in the natural gas market and, as I said, it cost consumers over $9 billion.

The interesting thing is, when they got out of the market and there was the pursuit by the Federal Regulatory Commission of this issue, natural gas prices dropped 38 percent--38 percent because we had a bad actor out of the marketplace.

So it is critical that we have this aggressive action and probe of the oil markets. It is critical that we give the Federal regulators--the FTC and the FERC, if they need to be involved, the CFTC, as well as the DOJ whom I have called on to be involved--the tools they need. But Democrats are going to make sure we police the oil markets.

If you think about that and you think about the fact that oil prices are 100 times over what they were a year ago, and if you had some sort of activity that was driving up that price--I am saying it is not supply and demand, it is not basic supply and demand. We haven't had a supply disruption. We haven't had that big of a change in the demand. So something is going on in the marketplace.

If we would do our job of investigating, we would make sure there is a bright line there for the consumer, for the American people who are paying too much at the pump right now, to say that these kinds of manipulative behaviors will not be tolerated.

The challenge we have is, when we don't have some of these markets having the transparency and the oversight, or people who are supposed to be the policemen on the beat, as well as the FTC not doing its job, then these markets have a lot of activities that can actually drive up the price. When we think about the Amaranth case, just imagine what would happen if you could actually lower the price because you get bad actors out of the market.

That is what we are simply saying. Let's do our job here and have the oversight hearings of this FTC rule and investigation of the oil markets. Let's do our job in making sure the consumer is represented in the development of this rule and a tough Federal statute so that consumers can have a little relief at the pump.

I noticed last night this was the first time gas prices didn't rise overnight. I also took note in the paper this morning of the CFTC Chairman's comment which was an indication of the fact that oil prices might have moved because, instead of investing in commodities, people have taken money out of those commodities and put them in other places in the stock market. People should be aware that Congress and the FTC are looking into any kind of manipulative practices when it comes to the oil market. Even if the rule isn't in final adoption today, the fact that we are going to be aggressive at protecting consumers and looking into this kind of manipulative practice, I believe, can help give consumers relief at the pump.

So let's get about doing our job. Let's get about protecting consumers in what is not a rational gas market today, and get about helping our economy by doing our job here and having the oversight hearings that it is going to take to make sure this rule gets developed with a strong framework that can be used to root out manipulation in the oil markets.

I thank the President, and I yield the floor. I suggest the absence of a quorum.

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