July 8, 2009
Laura Henderson, 202.621.2951
Patrick Creighton, 202.621.2947

Supply, Not Speculation, Responsible For Volatile Energy Prices

Latest CFTC Action a Diversion from the Real Cause, Supply and Demand

WASHINGTON – This week, the Commodities Futures Trading Commission (CFTC) unveiled a new plan for government takeover of how energy commodities are traded, valued and sold. In response to these proposed actions, Thomas J. Pyle, president of the Institute for Energy Research (IER), issued the following statement:

“For politicians who consistently oppose responsible energy development here at home, the demonization of so-called speculators remains a popular tool for absolving themselves of responsibility for the historically high prices they helped create. But for those with a genuine interest in punishing speculators who make money when oil prices are high, no single action would hurt them more than flooding the market with new supply.

“The CFTC, at least as an institution, understands this fact, and has published dozens of studies over the past several years debunking the myth that market trading activity artificially inflates the price of energy. Unfortunately, it appears that the current head of the commission has not read much of its previous work, joining a long list of policymakers either unwilling or unable to understand the difference between cause and effect.

“Washington has kept billions of barrels of oil shale in the Inter-mountain West under lock-and-key. Billions of barrels of oil remain effectively off-limit in our deep oceans, especially in Alaska. And at the same time, Washington is working to halt American energy production even further through massive tax hikes, mandates, and job-killing regulations. Interested in understanding the real causes of high energy prices? Speculate no more.”


  • IER: Speculators Fixing Oil Prices? Don’t Bet On It
  • IER: Question: How Many Times Has the FTC Found Evidence of Price Gouging by Energy Companies?
  • Paul Krugman: “Speculative nonsense, once again … The mysticism over how speculation is supposed to drive prices drives me crazy, professionally … A futures contract is a bet about the future price. It has no, zero, nada direct effect on the spot price … As I’ve tried to point out, there just isn’t any evidence from the inventory data that this is happening.” (New York Times, 6/23/08)
  • Krugman: “Hyperventilation over oil-market speculation is distracting us from the real issues.” (New York Times, 6/27/08)
  • T. Boone Pickens: “A U.S. probe into whether speculators manipulated oil prices up to more than $135 a barrel is a ‘waste of time,‘ … ‘There’s nothing to it to start with,’ Pickens said.” (Bloomberg, 6/3/08)
  • Pickens: “Speculation has become a ‘scapegoat’ for what is largely a supply and demand problem.” (Houston Chronicle, 7/10/08)
  • Warren Buffett: “But it’s not speculation, it is supply and demand …” (CNBC’s Power Lunch, 6/25/08)
  • Federal Reserve Chairman Ben Bernanke:The most important cause [of high gas prices] is the global supply-and-demand balance.” (Congressional testimony, 7/16/08)
  • Bernanke: “If financial speculation were pushing oil prices above the levels consistent with the fundamentals of supply and demand, we would expect inventories of crude oil and petroleum products to increase as supply rose and demand fell. But in fact, available data on oil inventories show notable declines over the past year.” (Congressional testimony, 7/15/09)

The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.


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