Scourge of the Oil Speculators
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"The Most Powerful Guy in Washington"
Masters says that as an investor and consumer, he sees no conflict of interest in testifying. "Yes, we are talking our positions," says Masters. "We'd like energy prices to go lower, for crude to go lower. Any stock market investor does." In his Washington testimony, Masters has explained to lawmakers how a flood of money from institutional investors has created a financial "demand shock," bidding prices ever higher (BusinessWeek.com, 5/21/08). On June 23, Masters claimed crude oil prices would likely drop by half if the U.S. market had tighter regulation.
At a May 20 hearing, Masters also explained his motivation for testifying: "I am speaking with you today as a concerned citizen whose professional background has given me insight into a situation that I believe is negatively affecting the U.S. economy. While some in my profession might be disappointed that I am presenting this testimony to Congress, I believe it is the right thing to do." At a June 24 hearing, Senator Claire McCaskill (D-Mo.) told Masters: "Those of us who run for office feel an incredible pressure to do something." She added that with his argument that a few regulatory fixes could quickly deflate the price of oil, "You may be the most powerful guy in Washington right now."
Masters says he never wanted to become the public face of the movement to regulate oil speculation, but felt a duty when asked by Senator Joe Lieberman's (I-Conn.) staff to testify. Oil's price surge is "a big problem, and it's hurtful to a lot of people and to the economy," he says. "I wanted to help people understand what's going on in this market." Masters, who lives with his family in the Virgin Islands, where his fund is based, likens congressional hearings to "glorified jury duty."
Criticized as His Arguments Gain Traction
Reluctant as he may be, Masters speaks in impassioned terms about oil prices. But criticism is coming from other quarters. Economist and columnist Paul Krugman wrote in The New York Times on June 27 that Masters is "making the bizarre claim that betting on a higher price of oil—for that is what it means to buy a futures contract—is equivalent to actually burning the stuff."
Heads of the New York Mercantile Exchange (NMX) and IntercontinentalExchange (ICE), U.S. Secretary of Energy Samuel Bodman, and analysts at Goldman Sachs (GS), Morgan Stanley (MS), and Barclays Capital (BCS) argue that markets are reacting to supply and demand signals and not commodity index investments.
Still, Masters and his allies' arguments are gaining traction. On June 26 the House of Representatives passed the Energy Markets Emergency Act, 401-19, calling for the Commodity Futures Trading Commission (CFTC) to use its emergency powers to "eliminate excessive speculation." At least five other proposals to increase regulation of commodities trading have been proposed in Congress in recent weeks. And as oil prices continue setting new records, pressure for action builds. The price of a barrel of West Texas Intermediate crude oil hit $142.99 in intraday trading on June 27, settling at a record $140.21.
((now this IMHO, if acted upon will shake the trees. I don't agree with it...but for the ST don't fight the FED's or FED. Imagine the rally in stocks IF they could drive crude down to 100 in a few weeks??))
Herbst is a reporter for BusinessWeek.com in New York. |
