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The Role of the Market Speculation in Rising Oil and Gas Prices, Senate Staff Report

Published June 27, 2006

The U.S. Senate's Permanent Subcommittee on Investigations conducted an investigation of market speculation and oil/gas prices. They reported the following findings and recommendations:

"A. Findings

1. Rise in Speculation. Over the past few years speculators
have expended tens of billions of dollars in U.S. energy commodity

2. Speculation Has Increased Prices. Speculation has contributed
to rising U.S. energy prices, but gaps in available market data
currently impede analysis of the specific amount of speculation, the
commodity trades involved, the markets affected, and the extent of
price impacts.

3. Price-Inventory Relationship Altered. With respect to
crude oil, the influx of speculative dollars appears to have altered
the historical relationship between price and inventory, leading the
current oil market to be characterized by both large inventories
and high prices.

4. Large Trader Reports Essential. CFTC access to daily reports
of large trades of energy commodities is essential to its ability
to detect and deter price manipulation. The CFTC's ability to detect
and deter energy price manipulation is suffering from critical
information gaps, because traders on OTC electronic exchanges and
the London ICE Futures are currently exempt from CFTC reporting
requirements. Large trader reporting is also essential to analyze
the effect of speculation on energy prices.

5. ICE Impact on Energy Prices. ICE's filings with the Securities
and Exchange Commission and other evidence indicate that its
over-the-counter electronic exchange performs a price discovery
function -- and thereby affects U.S. energy prices -- in the cash market
for the energy commodities traded on that exchange.

B. Recommendations

1. Eliminate Enron Loophole. Congress should eliminate the
Enron loophole that currently limits CFTC oversight of key U.S.
energy commodity markets and put the CFTC back on the beat policing
these markets.

2. Require Large Trader Reports. Congress should enact legislation
to provide that persons trading energy futures ''look-alike''
contracts on over-the-counter electronic exchanges are subject to
the CFTC's large trader reporting requirements.

3. Monitor U.S. Energy Trades on Foreign Exchanges. Congress
should enact legislation to ensure that U.S. persons trading
U.S. energy commodities on foreign exchanges are subject to the
CFTC's large trader reporting requirements.

4. Increase U.S.-U.K. Cooperation. The CFTC should work
with the United Kingdom Financial Services Authority to ensure it
has information about all large trades in U.S. energy commodities
on the ICE Futures exchange in London.

5. Make ICE Determination. The CFTC should immediately
conduct the hearing required by its regulations to examine the
price discovery function of the ICE OTC electronic exchange and
the need for ICE to publish daily trading data as required by the
Commodity Exchange Act."