WASHINGTON — Oil prices shot past $72 a barrel this week, and a growing number of experts point to Wall Street speculators as a key reason why Americans are suddenly paying a lot more for oil and gasoline.
Although soaring oil prices threaten the fragile economic recovery, most Capitol Hill lawmakers have remained silent about them, but not Sen. Susan Collins. The Maine Republican pumps her own gas and heats her Bangor home with oil, and on trips home, she gets an earful from angry consumers, who, like her, blame speculators.
"Constituents get it," she said. "They don't see the reason for it. They don't see (supply) shortages. They don't see (the Organization of Petroleum Exporting Countries) greatly reducing production or other reasons prices are going up so much."
Collins has been one of the few on Capitol Hill and even fewer Republicans who blame the rising oil prices in part on Wall Street investors. She and her allies, mostly Democrats, are trying to limit speculative investments in oil and other commodities, but they say they need more support from President Barack Obama.
Sign Up and Save
Get six months of free digital access to The Idaho Statesman
McClatchy has been reporting for 14 months that speculative investment — not simply supply and demand — has been helping drive oil prices higher. On June 5, Deutsche Bank, a major global financial institution, echoed the warning that excessive speculation is behind rising oil and gasoline prices. The price of crude peaked nearly a year ago at $147 a barrel.
"Crude oil prices appear to have been divorced from the underlying fundamentals of weak demand, ample supply, and high inventories," commodity analysts at the bank wrote. "Rising OPEC production and very high OPEC spare capacity also appear to be unimportant to oil market investors at this time."
OPEC on Friday further reduced, by 1.62 million barrels per day, its forecast for global oil consumption this year.
Yet a weaker dollar and bullish views on a global economic recovery are driving speculators back into the oil market, prompting a new wave of speculative investment from non-commercial traders — those who don't actually use the product — into contracts for future delivery of oil.
"We believe the current oil market environment bears a striking resemblance to the 2005-2008 environment, both of which are characterized, in our view, by fundamentally unjustifiable price increases," said Mark Gilman, a veteran oil analyst for investment manager The Benchmark Company, who added that oil should cost about $50 a barrel.
Exactly, Collins said.
"You can't have this enormous influx of non-commercial trades and so much money and think that it doesn't affect the price," she said.
Speculators such as Gresham Investment Management, a company that invests in commodities on behalf of big players such as pension funds and endowments, disagree.
"Speculators simply bet on the price of an underlying commodity, and because they control neither the supply of nor the demand for the commodity, they leave themselves open to the vagaries of the market," said Jason Ungar, Gresham's managing director, who fears that Collins and others will set limits on oil trading.
Collins, 56, hails from Caribou, the northern Maine city of about 8,000 people where her family has owned a lumber company for five generations. Both her parents were mayors of Caribou, and Collins has a long career in public service, first as a U.S. Senate staffer and later as a state regulator before she was elected senator in 1996.
She returns home every weekend. Asked if she knows the current price, she quickly shot back, "You bet I do!"
Some 80 percent of the homes in Maine are heated with oil, and rising gasoline prices hurt Maine's tourist industry. Collins regularly meets truckers, shop owners and retirees across the state who fret about rising energy costs. Elderly constituents tell her that they expect to move in with their children if home heating prices keep rising.
"She gets it," said Mark Brewer, an assistant professor of political science at the University of Maine.
That was evident earlier this month when the mild-mannered Collins grilled Gary Gensler, the recently confirmed chairman of the Commodity Futures Trading Commission.
"I understand that those investors' intention is to provide good returns as a hedge against inflation, asset diversification," she said. "But the effect of that activity cumulatively appears to drive up the price for some of the traditional users of the commodity markets."
Her view that speculative investing is behind rising prices, she suggested, came from ordinary folks, adding that, "Just a week ago, Maine's fuel dealers were in my office saying that they believe excessive speculation by non-commercial players is once again driving up the cost of oil."
Collins supports the Obama administration's recent call for limits on how much trading of oil contracts can be done by those who aren't users or producers of oil. She also wants to close a loophole that allows big Wall Street firms such as Goldman Sachs and others to avoid limits on how many oil contracts they can trade.
That's important, said hedge fund manager Michael Masters, because speculative investors now dominate the oil markets. A decade ago, speculators controlled about 25 percent of all overnight holdings of oil contracts, but today they control about 80 percent.
"It's completely reversed," said Masters, who testifies frequently before Congress.
Collins isn't alone in her quest. Sen. Bernard Sanders, an Independent from Vermont, held up Gensler's nomination for two months before he got assurances that the Obama administration would consider more regulation of commodities markets.
Senate Agriculture Committee Chairman Tom Harkin, D-Iowa., hopes to pass new commodities regulations by fall, and these efforts are supported Sen. Carl Levin, D-Mich., the chairman of the Permanent Subcommittee on Investigations.
The Maine Republican has another distinction, however: She's one of only three Republican U.S. senators from the Northeast — the others are Olympia Snowe of Maine and Judd Gregg of New Hampshire — and she's a rare Republican who favors further government regulation of oil trading.
It's why she thinks that ultimately changes may come only when Obama gets personally involved.
"He can help us explain why it matters," Collins said.
Collins was also one of only three Republicans voting in favor of Obama's economic stimulus bill, and that only after getting a promise of spending cuts and more school construction. Obama may need a handful of Republicans to revamp of financial regulation, including the oil markets.
Will Collins demand something again from the president in exchange for crossing party lines?
Offering a coy smile, Collins answered, "I do think the president has been receptive when I make suggestions."
ON THE WEB
MORE FROM MCCLATCHY
Follow the latest politics news at McClatchy's