Washington (Platts)--3Jun2008

Speculators have driven oil prices up dramatically and need to fall under
US regulation, oil trading and market experts told the US Senate Commerce
Committee Tuesday.

Allowing exchanges like the IntercontinentalExchange and others to be
regulated by financial services authorities in places like the UK and Dubai
undermines the stability of the US crude oil futures markets, said Michael
Greenberger, a professor at the University of Maryland School of Law.

"Virtually all parties now agree the Enron Loophole must be repealed,"
Greenberger told the panel, adding the simplest way to repeal it would be to
add two words to the act's definition of "exempt commodity" so that it does
not include agriculture and energy commodities.

"Two prominent and detailed bipartisan studies of the Permanent
Subcommittee on Investigations staff represent what is now conventional
wisdom: hedge funds, large banks and energy companies and wealthy individuals
have used exempt commercial energy futures markets to drive up needlessly the
price of energy commodities over what economic fundamentals dictate,"
Greenberger said. "The conclusion that speculation has added a large premium
to energy products has been corroborated by many experts."

Mark Cooper, director of research at Consumer Federation of America, said
the speculative bubble has cost the economy well over a half trillion dollars
in the two years since the problem was called to Congress's attention.

"That speculative bubble in energy commodities has cost households, on
average about $1,500 over the past two years in increased costs for gasoline
and natural gas," Cooper said.

At the same time, the Commodity Futures Trading Commission and the
Futures Energy Regulatory Commission have failed to protect the public because
they were slow to recognize the problem, Cooper said.

"We have a commodity that is vulnerable to abuse, in a new market that
has been under-regulated from its birth," he said, recommending that
regulation be overhauled from top to bottom.

Cooper said large traders who trade commodities in the US should be
required to register and report their entire positions in those commodities
here in the US and abroad. If traders are unwilling, they should not be
allowed to trade in US markets and if they violate that provision, they should
go to jail, he said.

Regulatory authorities also must require full auditing of private indexes
and should refuse to allow indices that are not fully transparent to be used
in ratemaking transactions.

In addition, margin requirements for speculators in energy markets should
be 50% higher than investors in the stock market, he said.

"Margin requirements on organized exchanges are a fraction of the margin
requirements on stocks," Cooper said. "If it is cheaper to put your money into
speculation, why bother with real investment."

Cooper also called for lower position limits and increased settlement
windows, so individual players have less ability to influence prices.

--Cheryl Buchta, cheryl_buchta@platts.com