Near-record oil prices could quickly fall by half if Congress were to rein in speculators, according to testimony Monday from a hedge fund manager and oil company adviser on Capitol Hill.
Michael Masters, of Masters Capital Management, told a subcommittee of the House Energy and Commerce Committee that - with greater regulation - oil prices could drop to $65 or $70 a barrel within about 30 days.
"That's half of where prices are today, and gas prices would reflect that," he said.
Roger Diwan, an adviser to oil companies at Washington, D.C.-based PFC Energy, agreed that regulation could lead to a drop in prices. He said it would take no more than 30 days for speculation in the oil market to decrease and gas prices to fall.
With more regulation, "prices will reflect closer the marginal cost of producing oil," Diwan said.
The testimony came as Congress, reflecting some sentiment among the public, blamed Wall Street traders for record oil and gasoline prices.
While I do want oil prices to go down, I am very leery about regulation. It could be a bad idea, and other’s think so as well:
But the head of the agency that regulates U.S. commodity futures said increasing the amount of money speculators need to put up to buy an oil contract - something the agency can do now in emergencies - could have unintended consequences.
"Changing margin requirements may drive businesses elsewhere to London and over-the-counter markets," said Commodity Futures Trading Commission Acting Chairman Walter Lukken. "I'm not sure it would get [index traders] out of the market," he said.
Lukken warned that raising margins could drive traders elsewhere, with Tokyo or Hong Kong market as beneficiaries.
So, Congress regulates the oil speculation market, traders move to London, Tokyo, or any other exchanges, and continue to drive up the price of oil. Then, you have all these traders who aren’t being taxed on the money that they were making in the US. So, you haven’t solved one problem and created another.
Unintended consequences indeed.
Travis
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