The aviation industry was pleased to see proposed legislation designed to curb the excesses of oil speculators. The initiative followed the creation of a new coalition – Stop Oil Speculation Now – which calls for federal action on several fronts to help materially reduce unnecessarily high energy prices. The coalition, including the Aircraft Owners and Pilots Association and the National Business Aircraft Association, applauded the introduction of S. 3268 – Stop Excessive Speculation Act.
In an open letter to customers, signed by a dozen airline chiefs, the coalition explained that it wants the expansion of oil supplies through new domestic exploration, efforts to advance alternative and renewable energy sources and the improvement of energy conservation. The campaign resulted in one million messages being sent to Congress. Airlines are mobilizing their frequent flyers to bombard Congress with messages supporting S. 3268 legislation.

The coalition is calling for
• Strengthening regulations weakened by the Enron Loophole and other loopholes
• Limiting the amount of oil that individuals or groups can trade speculatively in the energy futures markets while unfairly driving up prices
• Requiring reporting by unregulated, secret markets like the swaps market: All markets should have basic regulations that report the amount of oil people are buying, no matter who they are or where
• Make foreign traders follow U.S. rules and laws, just like everyone else who does business in the United States

The House has been taking up energy problems as well having passed HR 6377 which would direct the Commodity Future Trading Commission to use existing emergency authority to target excessive speculation. HR 4066 would close a loophole in federal law, created in 2000 to benefit the Enron Corporation, by regulating the trading of energy commodities to prevent price manipulation that leads to higher prices for consumers.
The House recently considered HR 6251, compelling oil companies to begin production on the 68 million acres of land, on-shore and off-shore, leased from the federal government but failed to drill. This land represents an estimated 81 percent of U.S. oil and gas reserves and an area twice the size of Pennsylvania.
Some have suggested that Congress should approve oil production in environmentally sensitive areas of our country, including the Alaskan National Wildlife Refuge (ANWR) and off coastlines. Others oppose such drilling, especially in light of the fact that oil companies are sitting on vast expanses of leased and untapped federal land that, if drilled, could double oil production by producing an additional 4.8 billion barrels of oil each day. HR 6251 would require that oil companies either produce oil on these lands or return them to the federal government so that other companies can.
President Bush recently signed into law HR 6022, to require the Department of Energy to stop buying 90,000 barrels of oil a day to top off America's Strategic Petroleum Reserve (SPR), which is currently 97 percent full. When the Department of Energy announced its plan to suspend purchases in preparation for this new law, the price of oil dropped slightly, which media reports attributed to this new law. There are also calls for President Bush to release oil from the SPR. This oil was purchased with taxpayer money for use in an emergency, and releasing it could help lower prices immediately.

Myths & Realities of the Energy Debate
Federal energy policy continues to be dismal, writes Washington Post’s Steve Pearlstein. “So far, the responses have been colossally disappointing, with the president, the presidential candidates and party leaders in Congress all retreating back to the same hardened and hackneyed positions that have created a stalemate in energy policy for the past 20 years.”
Pearlstein said those who favor more oil and gas drilling, more refineries and a revival of nuclear power are right as are those who demand “we finally get serious about conservation, crack down on speculation and market manipulation, and recycle windfall profits into alternative energy sources.”
He indicated that the U.S. has no choice but to do it all – “gas drilling off the coast of Florida and wind farms off the coast of New England. Curbs on speculation and curbs on CO2 emissions. Tax hikes for oil companies and tax breaks for solar.”
“Energy independence is a political slogan masquerading as energy policy,” he said, adding, “it's not achievable with existing technology, nor is it any more fundamental to our economic security than independence from food or steel imports. We live in a globalized economy – get over it.”
He also called environmentalist objections to further exploration silly and disingenuous when they say any finds would add only provide a small fraction to supply. “If that were the standard, no field would ever have been developed,” he said. “The environmentalists' hysteria on these issues has always been way out of proportion to the actual risks involved, suggesting that it may have more to do with symbolism and fundraising. Missing from the environmentalists' logic is any recognition of the tradeoffs involved, not only between the environment and the economy but among environmental goals.” The trade offs included risks to environmentally sensitive areas versus the risk of oil importation and the potential for oil spills.
Pearlstein favored raising taxes on oil companies. “Raising taxes on oil companies will reduce supply and raise prices,” he said, of the oft repeated oil industry objections. “This is true, in theory, holding all other factors constant. But in real life, all other factors are not constant. Take Exxon Mobil as an example. A doubling of oil prices over the past year had the effect of increasing its U.S. upstream earnings by 38 percent in the first quarter of 2008. If the government had captured just half of that increase through a windfall profits tax, its after-tax profits would still have risen by 19 percent. That's surely enough to stimulate investment, increase supply and drive prices lower than they were the year before. And the government would have collected an extra $800 million a year from Exxon Mobil to use for conservation or other energy-related incentives.”

American’s Want Action
A new poll issued last week found 80 percent of Americans polled said that they believe oil commodities speculators are manipulating the price of oil, and that more than two-thirds (67 percent) believe Congress should pass legislation creating new regulations governing oil speculators.
Additionally, 70 percent of Americans polled said that oil commodities speculators are driving up the price of oil and profiting at the expense of the U.S. economy. Sixty-eight percent also believed that new regulations would stabilize, and ultimately bring down, the price of gas.
Support for curbing oil speculation crossed all demographics and political philosophies: 62 percent of conservatives, 69 percent of moderates and 71 percent of liberals believe that Congress should pass new regulations. Republicans support additional regulation on oil speculators by a margin of 55 percent to 33 percent. Overall, awareness of the oil speculation issue is high at 63 percent
More voters polled (23 percent) said that oil speculators were “most to blame” for the high price of gasoline, over oil companies (20 percent), President Bush (20 percent), the countries that produce oil (11 percent), Congress (10 percent) and high consumer demand in the United States (10 percent)

Regulations Weakened over Two Decades
“Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery,” said the airlines’ letter to passengers. “Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.”
The coalition added that in recent months, the number of ‘paper barrels’ traded by speculators has risen dramatically, peaking at 22 times the physical market on June 6, when crude oil shot up $11 in one session. Interestingly that spike came immediately on the heels of a prediction of $150 per barrel oil by one of the speculators with the most to gain by the increase, according to the coalition.
Even so, Delta CEO Richard Anderson, expressing the same suspicion during last week’s second quarter webcast, indicated that non-commodity markets have been bad for investors. “When you think about has what happened to the money market in the last two years – the bond market, the stock market, mortgage lending – pretty much all the other places for all the money to go have not been good – so money has moved to commodity markets,” he said. “Since 2004, $350 billion moved to futures markets which are unregulated. It’s all flooding into commodities, wheat, corn, oil. When you have a bank saying oil will go to $150 to $200 per barrel, everyone is going to go there, and you know there is something more going on than just demand.”
“Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation,” the letter continued. “However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper.”

Impact of S. 3268
ATA President and CEO James C. May said S. 3268 creates a much needed distinction between legitimate hedgers and those who are in the market for purely speculative purposes. “This ensures that traders with no relationship to the physical product no longer can take advantage of existing loopholes,” said May. “The bill would close the ‘Foreign Board of Trade’ or ‘London’ loopholes by requiring transparency and limits similar to those required for trading on U.S. exchanges.”
Today’s oil price bubble is unfairly taxing American families and restricting our nation’s economic potential, said SOS Now. “Every time products such as food or gas are purchased, consumers are impacted by unregulated, secretive and often foreign commodities futures markets. Speculators in these markets are increasingly buying and selling commodities such as oil to sell again, rather than to use. As largely unregulated speculators pocket billions of dollars at the expense of U.S. consumers, the price of commodities has increased out of proportion to marketplace demands.
As a result, legitimate customers such as trucking companies, airlines and consumers have been forced to purchase oil at unnecessarily higher prices. This has dramatically raised costs, resulting in needlessly high prices for consumers and businesses.

Distaff View
While seven bills aimed at fuel speculation may be making their way through Congress, and airline execs forming an anti-oil speculation coalition, it could be the legislators are trying to look as if they are doing something rather than nothing. But they are not alone, according to The Economist, which also cited actions in Italy and Austria which wants the European Union to impose a tax on speculation. “Some claim that oil producers are in effect hoarding oil below the ground,” said the publication, which characterized the current focus on oil as a fad. “But there is little sign of that, either among companies or countries: all big exporters, bar Saudi Arabia, are pumping as fast as they can.” The magazine went on to defend the markets. “Despite their dismal reputation, the oil speculators provide a vital service,” it said. “They help airlines and other big oil consumers to hedge against rising prices, and to reduce risk – a massive boon amid the economic turmoil. By the same token, they provide oil producers with more predictable future revenues, and so allow them to expand more confidently and borrow more cheaply. That, in turn, should help to lower the price of oil in the long run. Any attempt to curtail speculation, by contrast, is likely to make life harder for firms and oil more expensive.”
While acknowledging the energy futures markets serve a useful purpose, especially to bona fide hedgers, ATA noted that they require proper oversight. “Reasonable financial controls and transparency, which have been eliminated at the urging of the big speculation market players, need to be reestablished,” said the coalition.
SOS Now is not the only Washington-based energy coalition. The Washington Post reported that the Sierra Club, opposing exploration in environmentally sensitive areas, created National Outer Continental Shelf Coalition with Environment America. Then there is the Coalition for Affordable American Energy announced in a letter sent recently to business associations which wants reduced energy prices any way possible. “The group is billed as a federation of energy users,” said the Post. “CAAE will focus on bringing the collective weight of business users to bear until such time as a national domestic energy policy is adopted which will accomplish its goal. The group ‘will add a voice not heard in any concerted way before in the energy debate – that of the thousands of businesses, large and small, which depend upon affordable energy supplies to operate.’”
CAAE said that, while it supports initiatives which encourage conservation and the development of renewable and alternative energy sources, its will focus most of its activity on increasing domestic oil and gas production “since alternative sources will not be able to meet U.S. demand for the next 25 years or more."
The Stop Oil Speculation Now coalition is a diverse and growing organization of industries, businesses, labor groups and ultimately concerned citizens united in support of responsible energy policies and prices. The coalition includes: ABX Air, Inc., Aerolitoral, Agricultural Retailers Association, Air Canada Jazz, Air Carrier Association of America, Air Line Pilots Association, International Air Transport Association, Air Wisconsin, Aircraft Owners and Pilots Association, AirNet Systems Inc., Airports Council International - North America, AirTran Airways, Alaska Airlines, Inc., ALMA de México, American Airlines, Inc., American Association of Airport Executives, American Bus Association, American Eagle, American Moving and Storage Association, American Society of Travel Agents, American Trucking Associations, Association of Corporate Travel Executives, ASTAR Air Cargo, Inc, Atlantic Southeast Airlines, Atlas Air, Inc., Cape Air, Cargo Airline Association, Chautauqua Airlines, Inc., Colgan Air, Inc., Comair, CommutAir, Compass Airlines, Continental Airlines, Inc., Delta Air Lines, Inc., Delta Connections, Empire Airlines, Era Aviation, Evergreen International Airlines, Inc., ExpressJet, Federal Express Corporation, Flight Options, Frontier Airlines, Inc., Gasoline & Automotive Service Dealers of America, GoJet Airlines, Grand Canyon Airlines, Great Lakes, Gulfstream, Hawaii Island Air, Hawaiian Airlines, Horizon Air, IBC Airways, International Brotherhood of Teamsters, JetBlue Airways Corp., Mesa Airlines, Mesaba Airlines, Messenger Courier Association of the Americas, Midwest Airlines, National Business Aviation Association, National Business Travel Association, National School Transportation Association, New England Airlines, New England Fuel Institute, Northwest Airlines, Inc., Petroleum Marketers Association of America, Piedmont Airlines, Inc., Pinnacle, PSA, Regional Airline Association, Republic Airlines, Salmon Air, Scenic Airlines, Shuttle America, Skybus Airlines, Skywest, Southwest Airlines Co., Spirit Airlines, Inc., Trans States, TripplerTravel.com, Truckers and Citizens United, TruthOnOil.org, Twin Otter International, United Airlines, Inc., United Motorcoach Association, UPS Airlines and US Airways, Inc.