By the time oil
prices hit their
latest peak in July,
the U.S. House and
Senate had held at
least two dozen
hearings on the role
speculators may have
played in the record
run-up.
This week, with the summer driving season drawing to a close and the price of oil now 20 per cent lower, Canadian legislators crammed their own "probe" into a two-day hearing.
If the intent was to create the perception that federal politicians are doing something about high fuel prices, it's unclear whether anybody was listening.
"I've been following Hurricane Gustav," said Jeff Rubin, chief economist at CIBC World Markets, when asked about the parliamentary committee hearing. Rubin didn't deny that speculators are playing some role in the price of oil, but questioned whether the government is asking the right questions.
"It's not about the Bank of Canada, the House of Commons or the Finance Ministry. Instead of playing the blame game, I would redirect our energy towards lessening our dependence on oil."
But even if a crackdown on speculators could provide some relief, it became clear on the first day of the hearing that Canada, a major oil producing country, isn't likely to do much about it.
When Liberal natural resources critic Omar Alghabra asked the most honest question of the day - "What can this government do?" - he got some blunt answers.
"We are in a bit of a fix," said Ellen Russell, a professor at Carleton University's School of Public Policy and Administration. "I would encourage you to encourage the government of Canada to make it known that (it) would like to see more regulatory moves south of the border that inhibit speculation."
Roger Diwan, an oil-market expert and partner with energy consultancy PFC Energy, put it more bluntly. "How do you influence Washington? I live in Washington, it's simple. You hire lobbyists." He conceded, however, that Canada could make some progress if it pushed the issue through its G8 membership.
Eric Sprott, the Canadian hedge-fund manager who founded Sprott Inc., said that short of subsidizing gas prices there's not much Ottawa can change: "You can't do anything about oil prices around the world."
The rapid rise of oil-market speculation is undeniable. In the 20 years prior to 2003 there was plenty of spare oil capacity, and nations who were members of the Organization of the Petroleum Exporting Countries could influence the price by simply turning the tap on and off. This power that OPEC yielded kept risk-averse speculators out of the market.
But underinvestment in exploration and development meant that this spare capacity eventually dwindled. Growing concern over "peak oil" and how it could cause crude prices to skyrocket captured the attention of the financial sector. In 2000, the U.S. ended its regulation of energy markets, letting speculators - pension funds, university endowments, big banks, boutique investment firms - trade in oil futures without much oversight from the Commodity Futures Trading Commission.
In 2003 there were about 50 financial institutions trading in the New York Mercantile Exchange, the Commons committee heard Wednesday. Today that number is closer to 400. Russell said billions of dollars flooded the commodities markets after the sub-prime mortgage meltdown, turning oil into an asset class and making crude prices highly vulnerable to arbitrage investing.
Nothing else could explain a barrel of oil jumping from $70 (U.S.) to $147 and back down to $115 within a year, said Diwan. "That change is a rush of money into the market and the control of speculators."
U.S. legislators are looking at putting up speed bumps that would reduce the influence speculators have on commodity prices, including limits on the number of oil contracts an investor can hold, and stricter disclosure requirements. They say absent of speculators, the price of oil would likely be closer to $80 a barrel today.
Warren McLean, the recently retired vice-president of Suncor Energy, said U. S. lawmakers are looking for a "bogeyman" and overestimating the impact of speculators on price.
"It may be having some impact on the market, but I don't think it's appreciable," said McLean, adding that speculators are beneficial to some degree.
Sprott, a follower of the theory that global oil production has reached or will soon reach its maximum and slowly decline, urged committee members to pay closer attention to longer-term fundamentals.
"We have this choice: Do you believe in the (peak oil) theory or don't you believe in the theory. If you believe in the theory, we have a big problem to deal with."
This week, with the summer driving season drawing to a close and the price of oil now 20 per cent lower, Canadian legislators crammed their own "probe" into a two-day hearing.
If the intent was to create the perception that federal politicians are doing something about high fuel prices, it's unclear whether anybody was listening.
"I've been following Hurricane Gustav," said Jeff Rubin, chief economist at CIBC World Markets, when asked about the parliamentary committee hearing. Rubin didn't deny that speculators are playing some role in the price of oil, but questioned whether the government is asking the right questions.
"It's not about the Bank of Canada, the House of Commons or the Finance Ministry. Instead of playing the blame game, I would redirect our energy towards lessening our dependence on oil."
But even if a crackdown on speculators could provide some relief, it became clear on the first day of the hearing that Canada, a major oil producing country, isn't likely to do much about it.
When Liberal natural resources critic Omar Alghabra asked the most honest question of the day - "What can this government do?" - he got some blunt answers.
"We are in a bit of a fix," said Ellen Russell, a professor at Carleton University's School of Public Policy and Administration. "I would encourage you to encourage the government of Canada to make it known that (it) would like to see more regulatory moves south of the border that inhibit speculation."
Roger Diwan, an oil-market expert and partner with energy consultancy PFC Energy, put it more bluntly. "How do you influence Washington? I live in Washington, it's simple. You hire lobbyists." He conceded, however, that Canada could make some progress if it pushed the issue through its G8 membership.
Eric Sprott, the Canadian hedge-fund manager who founded Sprott Inc., said that short of subsidizing gas prices there's not much Ottawa can change: "You can't do anything about oil prices around the world."
The rapid rise of oil-market speculation is undeniable. In the 20 years prior to 2003 there was plenty of spare oil capacity, and nations who were members of the Organization of the Petroleum Exporting Countries could influence the price by simply turning the tap on and off. This power that OPEC yielded kept risk-averse speculators out of the market.
But underinvestment in exploration and development meant that this spare capacity eventually dwindled. Growing concern over "peak oil" and how it could cause crude prices to skyrocket captured the attention of the financial sector. In 2000, the U.S. ended its regulation of energy markets, letting speculators - pension funds, university endowments, big banks, boutique investment firms - trade in oil futures without much oversight from the Commodity Futures Trading Commission.
In 2003 there were about 50 financial institutions trading in the New York Mercantile Exchange, the Commons committee heard Wednesday. Today that number is closer to 400. Russell said billions of dollars flooded the commodities markets after the sub-prime mortgage meltdown, turning oil into an asset class and making crude prices highly vulnerable to arbitrage investing.
Nothing else could explain a barrel of oil jumping from $70 (U.S.) to $147 and back down to $115 within a year, said Diwan. "That change is a rush of money into the market and the control of speculators."
U.S. legislators are looking at putting up speed bumps that would reduce the influence speculators have on commodity prices, including limits on the number of oil contracts an investor can hold, and stricter disclosure requirements. They say absent of speculators, the price of oil would likely be closer to $80 a barrel today.
Warren McLean, the recently retired vice-president of Suncor Energy, said U. S. lawmakers are looking for a "bogeyman" and overestimating the impact of speculators on price.
"It may be having some impact on the market, but I don't think it's appreciable," said McLean, adding that speculators are beneficial to some degree.
Sprott, a follower of the theory that global oil production has reached or will soon reach its maximum and slowly decline, urged committee members to pay closer attention to longer-term fundamentals.
"We have this choice: Do you believe in the (peak oil) theory or don't you believe in the theory. If you believe in the theory, we have a big problem to deal with."