The Air Transport Association of America (ATA) is launching a broad coalition effort urging Congress to immediately find bipartisan solutions to the worldwide surge in oil prices and decline in the U.S. economy. ATA is joined by key industries, labor and consumer groups in this initiative.
In a letter sent to Senate Majority Leader Harry Reid (D-NV), Senate Minority Leader Mitch McConnell (R-KY), House Speaker Nancy Pelosi (D-CA) and House Minority Leader John Boehner (R-OH), the coalition urged immediate action, through either the Commodity Futures Trading Commission (CFTC) or Congress, to ensure meaningful reforms are put in place to restore market integrity.
In the meantime, the federal government is trying to determine why commodity prices, including oil, have shot up so dramatically in the past year. Reuters reported that the CFTC, citing the strain on consumers, is forming a panel, to include the Federal Reserve, SEC, and the Treasury, Agriculture and Energy departments to study the issue. Treasury insists speculators are not causing the dramatic fuel increases. The CFTC said that the investigation should reveal what is really happening and urged caution in rushing to judgment about the cause of commodity price hikes. Under scrutiny will be investor practices, fundamental supply and demand factors as well as the role of speculators and index traders in commodity markets, said CFTC.
Reuters said Air Transport Association’s John Heimlich, a panel member, “questioned whether the trading arms of big Wall Street firms were benefiting from oil price forecasts from their firms' research divisions. Heimlich noted that recent forecasts calling for higher oil prices have been followed by a spike in such investments.”
"This country needs a fair, transparent and balanced energy commodities market, not one that is skewed to benefit speculators and institutional investors," the coalition wrote.
“We need to see fuel prices get below $100 per barrel,” said ATA’s David Castleveter. “The fuel bill for the U.S. passenger and cargo airlines in 2008 will be north of $61 billion, $20 billion more than in 2007. Our 2000 fuel bill was just over $16 billion. On an annualized basis, every time the price of crude oil (per barrel) increases $1, our fuel bill increases $465 million, assuming that the increase sticks over the full course of a year.”
While specific measures should be carefully drafted to avoid unintended consequences, the coalition identified three priority steps:
1) Fully close all loopholes, including the "Enron Loophole" and "Swaps Loophole," that allow institutional investors to avoid limits on the size of their investments;
2) Ensure all energy traders, including those trading on foreign boards of trade, are subject to the limits imposed on U.S. exchanges; and
3) Increase margin requirements and impose appropriate disclosure/financial requirements on institutional investors.