Tuesday, June 10, 2008

For lobbyists, high gas prices are good news

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By Jim Snyder

There may be one group of people who don’t mind the soaring oil prices — lobbyists.

Rising gas prices have provided steady employment on K Street, even if the spike has made it more expensive to fill up the SUVs lobbyists seem to favor.

Advocates of various stripes have had to fend off a variety of legislation that would do everything from opening OPEC up to antitrust lawsuits, to allowing oil and gas developers access to offshore areas now off-limits, to taxing “windfall profits” the industry now gets and redirecting the money to promote renewable energy.

None of these proposals ever has much hope of passing, although they return every year, meaning new contracts for K Street.

But as gas reaches a national average of $4 a gallon for the first time in the nation’s history, some see the makings of a consensus on Capital Hill: making it harder for investors to buy crude on the commodity futures markets.

Critics say the increased participation of non-commercial investors that don’t intend to use the commodity — as opposed to, say, airlines that also buy crude — has helped raise prices.

Increasingly, lobbyists representing Wall Street and other investors are waking up to the idea that for all the bashing that oil executives have received in recent years, hedge funds and other oil speculators could end up paying the political price for high gas costs.

“More and more senators are questioning the adequacy of the [Commodity Futures Trading Commission’s (CFTC)] regulatory oversight, and more and more are bothered by the role that speculation and non-commercial, institutional investors are having in preventing energy markets from functioning properly,” said Bill Wicker, a spokesman for the Energy and Natural Resources Committee.

The committee, which is chaired by Sen. Jeff Bingaman (D-N.M.), is one of several congressional panels to delve into the issue of oil speculation in recent months.

Bingaman has pressed CFTC officials to review the impact speculation has on oil prices. Regulators have recently responded that they are taking a second look at their level of oversight.

Bingaman is also one of several members considering introducing a bill to curb oil speculation.

Of more immediate concern to lobbyists is a provision in the Senate energy bill Majority Leader Harry Reid (D-Nev.) is pushing this week.

The bill includes some old standbys. It taxes excess oil profits, includes the “NOPEC provision” that would allow OPEC countries to be sued, and makes gasoline “price gouging” a federal crime.

Most lobbyists expect the bill to fail to reach the 60-vote threshold to limit debate in the Senate, where several similar bills have already died.

But the legislation includes a provision that would restrict some investors from participating in oil markets. That language would likely pass on its own, several lobbyists said.

Championed by Sen. Byron Dorgan (D-N.D.), the provision would impose margin requirements on investors. Investors would have to put down at least 25 percent of the value of the contract, much more than current requirements call for.

The provision is designed to target hedge funds that borrow money to purchase oil contracts, said Pete Davis, president of Davis Capital Investment Ideas, a political intelligence firm.

“I have a lot of clients who are all interested in the goings-on in this bill,” Davis said.

He said that bill and others that have been introduced or are in the works have the potential to significantly alter the level of investor participation in futures markets.

Sen. Joe Lieberman (I-Conn.), the chairman of the Homeland Security and Governmental Affairs Committee, is considering limiting participation of index funds and institutional investors in futures markets in a measure he is drafting, an aide said.

The bill might also close a loophole that allows traders to purchase contracts in a London exchange outside the purview of U.S. regulators.

Lobbyists also expect Rep. Bart Stupak (D-Mich.) to introduce a revamped version of a bill he has already introduced later this week.

“The main concerns are about trading in the dark markets, regulatory loopholes for swap dealers and a lack of transparency requirements,” Wicker said.

Although lawmakers have yet to coalesce around a single effort, “there is growing bipartisan interest in looking at this issue,” said one Democratic lobbyist.

That makes this lobbyist and others representing investors nervous. The odds there could be unintended consequences on an issue as complex as futures trading are high, they say.

But the evidence increased Monday that investors, and not oil executives, are in Congress’s sights.

Five senators, two Republicans and three Democrats, wrote the CFTC on Monday urging regulators to take “emergency action” to prevent rampant speculation.

There are varying accounts as to how much of an impact oil speculators have had on the price. Billionaire financier George Soros told a Senate panel that speculators were creating an oil bubble, but he also said tight supplies and growing demand underlie the high prices.

Sarah Emerson, managing director of Energy Security Analysis, an energy research and forecasting firm, told the Energy and Natural Resources Committee that in the 1980s, there was as much as 15 percent spare crude oil production capacity in the global market.

“Now, we are down to 2-3 percent,” she said.

Oil lobbyists say supply and demand can’t explain what happened last Friday, when oil prices shot up more than $11 a barrel, pushing gas prices to their historic highs.

“We say it’s a factor. But we don’t know how much of a factor,” said one lobbyist for an oil refiner.

It is clear there is a lot more speculative money in oil markets than there has been.

From 2003 to 2008, investments in commodity index funds, which include goods beyond oil, grew from $13 billion to $260 billion, according to the Senate letter sent Monday. Sens. Olympia Snowe (R-Maine), Ted Stevens (R-Alaska), Ron Wyden (D-Ore.), Dianne Feinstein (D-Calif.) and Maria Cantwell (D-Wash.) signed the letter.

Davis cautioned, however, that the participation by investors isn’t necessarily a bad thing. It increases the liquidity of the market, for example. That makes it easier for commodity user groups, like airlines, to hedge against future price increases.

“Speculation can be good and bad,” he said.

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