Speculators push up gas prices, consumer advocate tells Senate

WASHINGTON — Gasoline should cost about $2.25 a gallon at the pump, and everything above that is "funny money" largely tacked on by speculation and manipulation in the energy markets, a consumer advocate told a Senate committee Tuesday.

"The 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," testified Mark Cooper, director of research for the Consumer Federation of America.

The total cost to the U.S. economy has been more than half a trillion dollars, he said.

As retail gas prices reached a record high for the 26th time in 27 days, Cooper was among several experts who told the Senate Committee on Commerce, Science and Transportation that speculators are helping push up prices.

Cooper said the recent $120 price for a barrel of crude oil could be split into thirds: $40 for the true economic cost, $40 added by OPEC and $40 due to speculators.

"Excessive speculation on energy trading facilities is the fuel that is driving this runaway train in crude oil prices," said Inland Oil Co. President Gerry Ramm, who spoke on behalf of the Petroleum Marketers Association of America.

Tighter federal restrictions on speculators could push down prices at the pump by 25 percent practically overnight, testified Michael Greenberger, a University of Maryland law professor and former director of the Division of Trading and Marketing at the Commodity Futures Trading Commission.

The hearing came as the motorist advocacy group AAA reported that the national average price for a gallon of regular unleaded gas was $3.978, up 0.3 cents on Sunday and the same level on Monday. That was the first time since early May that prices had not risen from one day to the next.

The hearing was aimed at finding whether market fundamentals or outside forces were driving up the prices.

"With gasoline prices well over $4 a gallon in some regions and diesel topping $5, consumers no longer have the confidence that the prices they are paying at the pump are fair or even linked to underlying supply-and-demand forces," said Sen. Maria Cantwell, D-Wash., who chaired the hearing.

The witnesses agreed that pure economic forces — less crude oil and more demand for petroleum products — were a factor. But they also agreed that speculators were pushing prices higher than they should be.

George Soros, the billionaire chairman of Soros Fund Management, said there are real economic reasons for oil prices to be going up.