Time	Speaker	Text
00:00:11	>>	NOW A CONGRESSIONAL PANEL EXAMINES THE IMPACT OF ENERGY SPECULATION ON OIL PRICES AND WHETHER MORE OVERSIGHT IS NEEDED IN THE COMMODITY FUTURES MARKETS. A GROUP OF OFFICIALS WITH THE ENERGY INDUSTRY IS FIRST AMONG THE FOR YOUR PEBBLES TO TESTIFY BEFORE MEMBERS OF THE HOUSE ENERGY SUBCOMMITTEE ON OVERSIGHT. THIS HEARING IS ABOUT SIX HOURS.
00:00:29	Gheit, Fadel	OVER THE LAST 12 MONTHS, AS YOU ALL STATED, OIL PRICES MORE THAN DOUBLED, BUT INDUSTRY FUNDAMENTALS HAVE NOT CHANGED. THE SAME OLD FACTORS SUPPLY DISRUPTION IN NIGERIA, VENEZUELA, IRAQ, IRAN. ALL OF THESE FACTORS WERE ALREADY EMBEDDED OR REFLECTED IN OIL PRICES A YEAR AGO WHEN OIL PRICES WERE $65. NOTHING I CAN THINK OF THAT CHANGED THE LAST 12 MONTHS, WITH THE EXCEPTION OF THE EVALUATION -- OF THE DEVALUATION OF THE DOLLAR THAT CAUSED OIL PRICES TO DOUBLE. I HAVE BEEN SAYING THAT OIL PRICES ARE INFLATED. THEY ARE NOT SUPPORTED BY MARKET FUNDAMENTALS, AND THE REASON I REACHED THE CONCLUSION THAT OIL PRICES ARE EXTREMELY HIGH IT IS THAT I HAVE BEEN IN THIS BUSINESS OVER 30 YEARS. I TOOK -- I TALKED REGULARLY TO THE CEOS OF OIL COMPANIES FROM THE LARGEST OF THE MALL TO THE VERY SMALL, INDEPENDENT OIL AND GAS COMPANIES. -- LARGEST OF THEM ALL TO THE VERY SMALL INDEPENDENT OIL AND GAS COMPANIES. THIS DOES NOT REFLECT MARKET FUNDAMENTALS. IN MY VIEW, WE CAN PRODUCE WILL PROFITABLY AT LESS THAN HALF THE CURRENT PRICE LEVELS. -- CAN PRODUCE OIL PROFITABLY AT LESS THAN HALF THE CURRENT PRICE LEVELS. THERE IS NO FUNDAMENTAL CHANGE OF THE LAST 12 MONTHS WHEN WHILE PRICES WERE $65. NOW OIL PRICES ARE DOUBLE THAT TODAY, AND ARE LIKELY TO GO HIGHER, BECAUSE AGAIN, THE SPECULATION WILL CONTINUE. THE SAME TIGHTNESS IN THE MARKET WILL CONTINUE. WE SAW WHAT HAPPENED YESTERDAY IN RIYADH OR CHAD AND BASICALLY THE SAUDI GOVERNMENT SAID THAT IT IS SPECULATION. AS WELL AS THE DEVALUATION OF THE DOLLAR AND THE CONTINUED DEMAND INCREASE IN CHINA AND INDIA. THE CHANGES IN DEMAND IN CHINA AND INDIA WAS NOT NEW. ACTUALLY, DEMAND GROWTH HAS SHRUNK OVER THE LAST 12 MONTHS BECAUSE OF THE ECONOMIC SLOWDOWN. THE OIL INDUSTRY CAN PROFITABLY REDO -- PRODUCE OIL AT LESS THAN HALF THE CURRENT PRICE. WHAT WE DO ABOUT SPECULATION? A LOT OF PEOPLE TALK ABOUT SPECULATION. SOME PEOPLE SAY HAVE VERY LITTLE ABOUT OIL PRICES. SOME PEOPLE THINK IT MORE THAN DOUBLES OIL PRICES. AS I RECOMMENDED TO THE SENATE PANEL IN DECEMBER LAST YEAR, WE SHOULD RAISE THE MARGIN REQUIREMENT TO 50%, SIMILAR TO THE REQUIRED ON STOCKS. WE SHOULD BAR COMPANIES OPERATING IN THE U.S. FROM TRADING ON EXCHANGES NOT IN COMPLIANCE WITH THE U.S. REGULATORS. WE CANNOT CONTROL -- WE CANNOT CLOSE THE DOOR HERE AND OPEN IT OUTSIDE. WE SHOULD SET TRADE VOLUME LIMITS BY COMMERCIAL IN RELATION TO PHYSICAL NEEDS. ONLY THOSE COUNTRIES THAT WILL PHYSICALLY USE THE OIL, WE SHOULD SET INDUSTRY STANDARDS FOR AIRLINES, FOR OIL COMPANIES, WORK FOR REFINERS TO SEE WHAT IS THE APPROPRIATE LEVEL THAT PHYSICAL INDUSTRY WE SHOULD HAVE. WE SHOULD FIND A PERCENTAGE -- -- WE SHOULD LIMIT IT TO A PERCENTAGE OF COMMERCIAL VOLUME. SOME PEOPLE SAY WE NEED LIQUIDITY, AND THIS PROVIDES SERVICE, BUT WE WANT -- WE DO NOT WANT THEM TO CONTROL THE MARKET AS THEY HAVE OVER THE NEXT FEW YEARS. WE SHOULD BAR INVESTMENT BANKS FROM OWNING ENERGY ASSETS. WE SHOULD SEPARATE CRUDE OIL TRADING FROM OTHER TRADING AND INVESTMENT SERVICES. WE SHOULD REQUIRE FULL DISCLOSURE BY INVESTMENT BANKS OF OIL TRADING RESULTS. WE SHOULD IMPOSE STIFF PENALTIES, INCLUDING JAIL TIME, ON VIOLATORS. THAT IS THE END OF MY STATEMENT.
00:04:56	Stupak, Bart	THANK YOU. YOUR OPENING STATEMENT PLEASE, SIR?
00:05:04	Diwan, Roger	THANK YOU, AND GOOD MORNING. I WOULD LIKE TO CONCENTRATE ON THE STRUCTURAL CHANGES THAT HAVE OCCURRED IN THE LAST FEW YEARS IN THE OIL MARKET AND HOW THE MECHANISM OF OIL PRICES HAVE SHIFTED FROM THE PHYSICAL TO THE FINANCIAL WORLD. IF YOU CAN PULL MY FIRST SIDE BELIEVES. AS YOU CAN SEE -- IF YOU CAN PULL MY FIRST SLIDE PLEASE. AS YOU CAN SEE PRICES WERE LARGELY DETERMINED BY THE LEVEL OF INVENTORIES, AND THE MAIN REASON FOR THE NARROW BAND WAS THE EXISTENCE OF A VERY LARGE AMOUNT OF UNUSED CAPACITY WITHIN OPEC. . . THIS YEAR OF SCARCITY IS DEFINED BY A SUPPLY NARRATIVE THAT IS FIRMLY BISHED IN THE OIL MARKET AND FINANCIAL PLAYERS. IT IS THAT NARRATIVE THAT USHERS THE FINANCIALIZATION OF THE OIL MARKETS. THIS CAN BE SEEN IN THREE KEY MOMENTS BETWEEN 2003 TO 2006. ALL POINTS TO THE OIL OF DISCOVERY. THE FIRST IS A DRAMATIC INCREASE FOR FINANCIAL PLAYERS OF OIL FUTURES WITH THE MULTIPLICATION OF FIVE AND THE RAPID AWE TAKEOFF OF THE EXCHANGE. AS THE NUMBER GREW THEIR WEIGHT GREW AND WE HAVE SEEN AN INCREASE IN LIQUIDITY AND INFLOW. AFTER THAT FIRST PHASE OF FINANCIALIZATION WE SAW A STRONG CORRELATION TO THE NET INCOME OF MONEY TO FUTURES AND OIL PRICES. IN THE SECOND PHASE THIS GROUP GREW TO BE MORE SOPHISTICATED AND WE SAW A CORRELATION BETWEEN THE NET LENGTH OF THE NONCOMMERCIAL AND OIL PRICES. CLEARLY THE MOST TROUBLING ISSUE IS THE DOUBLING OIL PRICES. SINCE AUGUST 2007, OIL HAS BECOME A HEDGING INSTRUMENT BETWEEN THE WEAKENING DOLLAR AND OIL PRICES. MONETARY POLICY IN SEPTEMBER 2007 WITH RATE CUTS, THE U.S. DOLLAR WEAKENED. AS THE DOLLAR WEAKENED DOLLAR-PRICED OIL HAS EMERGED AS A NATURAL HEDGE AND WE HAVE A NEGATIVE CORRELATION BETWEEN OIL AND DOLLAR. HOW DID WE GET TO THE POINT WHERE OIL BECOME A HENLING TOOL AND NOT JUST THE PRICE OF A COMMODITY? THE COME NAKES OF INCREASED LIQUIDITY AND NEW PLAYERS SUCH AS INDEX FUNDS HAVE MADE IT USED BY OIL PORTFOLIO MANAGERS. WE HAVE CREATED A LINKAGE WITH THE REST OF THE FINANCIAL INSTRUMENTS AND OPENED OIL TO BE USED AS A HEDGING INSTRUMENT. NOW OIL PRICES ARE DRIVEN BY WHAT A CALL THE MACROFUNDAMENTAL SUCH AS INTEREST RATES OR INFLATION EXPECTATION AS MUCH AS BY THE OIL FUNDAMENTALS WHICH ARE TRADITIONAL SUPPLY AND DEMAND ANALYSIS. THE INSTRUMENT OF CHOICE BETWEEN OIL AND MACROFUNDAMENTALS ARE THE INDEX FUNDS. THEY HAVE BECOME THE PRIMARY TOOL FOR HEDGING, SPECULATING IN COMMODITIES. THEY REPRESENT THE SINGLE LARGEST COMPONENT OF ALL FUTURES. THE LACK OF POSITION LIMITS FOR THESE FUNDS HAVE CREATED A BACK DOOR ALLOWING THE FINANCIAL COMMUNITY TO INVEST MORE THAN THE REGULATORS ORIGINALLY. SINCE THEY HAVE BIGGER MARKETS LIKE CURRENCIES THEY HAVE ROOM TO CONTINUE TO GROW. NOW THAT OIL HAS BECOME A NEW ASSET CLASS WE SHOULD MAKE SURE TO HAVE THE FRAMEWORK AND MAKE SURE WE DON'T GIVE INCENTIVES TO INVEST IN ONE CLASS OVER ANOTHER BE IT THROUGH LOOPHOLES OR MARGIN CALLS. THANK YOU.
00:09:36	Stupak, Bart	THANK YOU. MR. MASTERS, PLEASE, FOR AN OPENING STATEMENT. TURN ON THAT BUTTON THERE. MAKE SURE THE GREEN LIGHT IS ON THERE. THERE WE GO.
00:09:46	Masters, Michael	THANKS.
00:09:47	Masters, Michael	MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE, THANK YOU FOR THE OPPORTUNITY TO TESTIFY TODAY ON THE TOPIC OF ENERGY SPECULATION. COMMODITIES FUTURE MARKETS EXIST SOLELY FOR THE BENEFIT OF BONN FIDE PHYSICAL HEDGERS, NOT SPECULATORS. THE FUTURES MARKET PROVIDE HEDGERS WITH TWO VITAL FUNCTIONS, PRICE DISCOVERY AND RISK HEDGING. IN FACT PRODUCERS AND CONSUMERS IN THE ENERGY MARKETS PRICE NEARLY ALL SPOT MARKETS AT A FUTURES PRICE PLUS OR MINUS A FACTOR. FOR EXAMPLE A HEATING DISTRIBUTOR PAYS A PRICE MINUS A DIFFERENTIAL. WHEN THE SPOT PRICE RISES BY A DOLLAR, THE SPOT PRICE RISES. PRICE ORIGINATES IN THE FUTURES MARKET AND ARE TRANSMIT TODAY THE SPOT MARKETS SO. WHAT HAPPENS IN THE FUTURES MARKETS DOES NOT STAY IN THE FUTURES MARKETS. INDEX SPECULATORS, A GROUP I DEFINE IN WRITTEN TESTIMONY, HAVE DRIVEN UP PRICES AND DAMAGED THE PRICE FUNCTION. SLIDE ONE. INDEX SPECULATORS POURED BILLIONS OF DOLLARS INTO THE COMMODITIES FUTURES MARKETS, SPECULATING COMMODITIES PRICES LYNN CREASE. AS THE SLIDE SHOWS ASSETS ALLOCATED HAVE RISEN TO $13 BILLION IN 2003 TO $260 BILLION BY THE MARCH --
00:11:24	Barton, Joe	WILL THE GENTLEMAN -- MR. CHAIRMAN, COULD YOU HAVE THE BIG SCREEN PUT DOWN?
00:11:29	Stupak, Bart	WE WERE JUST TALKING ABOUT THAT.
00:11:32	Barton, Joe	I CAN'T SEE THAT.
00:11:33	Stupak, Bart	PLAUSE THE GLARE.
00:11:35	Stupak, Bart	KYLE, GET THE BIG SCREEN DOWN?
00:11:38	Barton, Joe	THANK YOU, MR. CHAIRMAN.
00:11:40	Stupak, Bart	HANG ON, MR. MASTERS SO WE CAN GET IT UP THERE. YOU'RE INTO THIS MODERN TECHNOLOGY. YOU CALL IT VIDEO BARRELS. WE CALL IT PAPER BARRELS. WE'RE STILL A BIT SLOW YET. KYLE, CAN YOU PUT THAT ON THE BACK SCREEN? IT WILL TAKE JUST A SECOND. IT'S GOT TO WARM UP. NEED A LITTLE ENERGY. WE'LL GET GOING HERE. IT'S ON PAGE FIVE OF MR. MASTERS' TESTIMONY IF YOU WANT TO FOLLOW ALONG. MR. MASTERS, IF YOU WANT TO CONTINUE WHERE YOU LEFT OFF. THANK YOU.
00:13:00	Masters, Michael	THANK YOU. IF YOU CAN SEE FROM THE CHART THE PRICES OF THE 125 COMMODITIES HAVE RISEN BY AN AVERAGE OF 183%. INDEX SPECULATORS HAVE BOUGHT NOR COMMODITIES FUTURES CONTRACT IN THE LAST FIVE YEARS THAN ANY OTHER GROUP. IF THEY HAD BEEN THE LARGEST BUYER OF FUTURES CONTRACTS, SIT NOT REASONABLE THAT THEY WOULD HAVE HAD ONE OF THE LARGEST IMPACTS ON FUTURES PRICES ? IMPORTANTLY, PHYSICAL HEDGERS ARE MOTIVATED BY ONE THING, RISK REDUCTION. PRODUCERS AND CONSUMERS ONLY TRADE FUTURES IN ORDER TO HEDGE THEIR ACTUAL PHYSICAL CONSUMPTION. THEIR TRADES ARE BASED ON SUPPLY AND DEMAND FUNDAMENTALS THEY EXPERIENCE IN THE REAL WORLD. THEIR TRADING STRENGTHS. IN CONTRAST, INDEX SPECULATORS INVEST IN A BROAD BAND OF COMMODITIES. THEY DO NOT TRADE BASED ON UNDERLYING PLY AND DEMAND FUNDAMENTALS. THEREFORE THEIR PRICES DAMAGE. IF A PENSION FUND DECIDES TO ALLOCATE $100 MILLION TO A COMMODITIES INDEX THE $40 MILLION THAT FLOWS INTO WEST TEXAS CRUDE OIL HAS NOTHING TO DO WITH THE REAL WORLD SUPPLY OR DEMAND FOR CRUDE OIL. EVERY SINGLE WTI FUTURES CONTRACT TRADED FOR MY REASON OTHER THAN THE SUPPLY AND DEMAND OF OIL IS A CONTRACT THAT WEAKENS THE PRICE DISCOVERY FUNCTION. IN 1998 PHYSICAL HEDGERS OUTNUMBERED HEDGERS BY A 4-1 RATIO. TODAY INDEX SPECULATORS ARE THE 800-POUND GORILLA. TOGETHER WITH OTHER SPECULATORS THEY OUTNUMBER PHYSICAL HEDGERS BY A TWO-ONE RASHEYOFMENT THERE ARE STEPS CONGRESS CAN TAKE TO REDUCE EXCESSIVE SPECULATION AND STRENGTHEN THE PRICE DISCOVERY FUNCTION. FIRST, I RECOMMEND THAT CONGRESS CONVENE A PANEL COMPOSED EXCLUSIVELY OF EVERY COMMODITY. THIS PANEL SHOULD SET HARD AND FAST SPECULATIVE POSITION LIMITS AT THE CONTROL ENTITY LEVEL. THESE LEVELS MUST APPLY TO EVERY PARTICIPATE WHETHER THINK DIRECTLY ACCESS THE FUTURES MARKETS OR OVER THE TRADE THROUGH SWAPS AND OTHER DRIVETIES. SECOND THE PANEL SHOULD DEFINE WHAT CONSTITUTES EXCESSIVE SPECULATION AS A PERCENTAGE OF OPEN INTEREST. THIRD, CONGRESS SHOULD ELIMINATE THE PRACTICE OF INVESTING THROUGH PASSIVE COMMODITY INDEX REPLICATION. BECAUSE OF THE DAMAGE THAT IT DOES TO THE PRICE DISCOVERY FUNCTION. ANOTHER AVENUE MIGHT BE FOUND IN THE COMMODITIES EXCHANGE RATES WHICH STATES QUHEN DISCUSSING LIMITS THAT "SUCH LIMITS UPON POSITIONS IN TRADING SHALL APPLY BY TRADING DONE BY TWO OR MORE PERSONS ACTING PURSUANT TO AN EXPRESSED AGREEMENT OR UNDERSTANDING THE SAME AS IF THE POSITIONS WERE HELD BY OR THE TRADING WERE DONE BY A SINGLE PERSON." SINCE INDEX SPECULATORS ACT IN EXPRESS AGREEMENT BY FOLLOWING THE SAME TRADING METHODOLOGY THEY SHOULD BE HELD TO THE LIMITS OF A SINGLE SPECULATOR. IF THIS WERE ENFORCED THE AMOUNT OF MONEY ALLOCATED WOULD HAVE TO DROP FROM THE CURRENT LEVEL OF $260 BILLIONS TO THE LIMITS OF A SINGLE SPECULATOR, APPROXIMATELY $4 MILLION. WALL STREET IS GOOD AT PREVENTING NOVEL INVESTMENT STRATEGIES. UNFORTUNATELY, THEY ARE NOT GOOD AT FORESEING THE LONG-TERM CONSEQUENCES OF THE INSTRUMENTS THEY CREATE. THE RECENT SUBPRIME DEBACLE WHICH HAS GROWN INTO A WORLDWIDE FINANCIAL CRISIS SHOWS US WHERE UNBRIDLED FINANCIAL INVASION CAN LEAD. THIS CONCLUDES MY TESTIMONY.
00:16:59	Stupak, Bart	THANK YOU, MR. MASTERS. DR. KRAPELS, OPENING STATEMENT. I SHOULD NOTE FOR THE RECORD THAT CONGRESSMAN GENE GREEN FROM TEXAS JOINED US.
00:17:07	Krapels, Edward	GOOD MORNING, MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE. THANK YOU FOR YOUR INVITATION TO PARTICIPATE IN THIS PANEL. I'LL TRY TO AVOID DUPLICATING WHAT MY PREDECESSORS HAVE SAID, AND I DON'T HAVE PICTURES THAT ARE ANY BETTER THAN THEIRS SO LET ME TRY TO MAKE FOUR OR FIVE COMMON SENSE STATEMENTS. FIRST OF ALL, LET ME AGREE WITH CONGRESSMAN BARTON THAT IT ISN'T JUST SPECULATION THAT'S DRIVING UP THE PRICE OF OIL THERE. IS A VERY COMPREHENSIVE SET OF PHYSICAL MARKET FUNDAMENTALS THAT HAVE LED TO TIGHT MARKETS. TRYING TO FIGURE OUT PRECISELY HOW MUCH OF TODAY'S PRICE IS PHYSICAL VS. FINANCIAL IS A DIFFICULT EXERCISE AND ONE THAT'S NOT TERRIBLY PRODUCTIVE. HAVING SAID THAT, THOUGH, I AGREE WITH MY FELLOW PANEL MEMBERS, AND I WOULD SAY THAT THERE ARE FOUR THINGS THAT WE SHOULD LOOK AT WHEN WE THINK ABOUT THE EFFECT OF FINANCIAL MARKETS OBJECT PRICE OF OIL. FIRST OF ALL, THERE ARE ALWAYS BUBBLE IN FINANCIAL MARKETS. RIGHT? ARGUING THAT THIS IS NOT A BUBBLE IN THE OIL MARKET OR THAT OIL MARKETS ARE SOMEHOW EXEMPT FROM HAVING BUBBLES IS NOT PRODUCTIVE. GLOBALLY THERE IS SO MUCH MONEY IN TODAY'S INVESTMENT WORLD THAT WHERE THE MONEY FLOWS AFFECTS THE VALUE OF THE ASSETS THE MONEY FLOWS TO. MONEY CLEARLY HAS FLOWED INTO COMMODITIES AND INTO ENERGY THAT EFFECT HAS HAD AN EFFECT ON ENERGY PRICES. THERE'S APPEAR WONDERFUL BOOK THAT CAME OUT A YEAR OR SO AGO CALLED "A DEMON OF OUR OWN DESIGN", AND HE WROTE SOMETHING THAT MICHAEL JUST SAID. I QUOTE HIM. MORE OFTEN THAN NOT CRY CEASE AREN'T THE RESULT OF SUDDEN ECONOMIC DOWNTURNS OR NATURAL DISASTERS. VIRTUALLY ALL MISHAPS OVER THE PAST DECADES HAD THEIR ROOTS IN THE COMPLEX STRUCTURE OF THE FINANCIAL MARKETS THEMSELVES. WE CREATE INSTRUMENTS THAT ARE SO SOPHISTICATED AND DIFFICULT TO UNDERSTAND IN THEIR INTERACTION WITH ONE ANOTHER. THAT HAPPENED IN THE OIL BUSINESS. MY SECOND POINT IS THAT IN THE COMMODITIES SECTOR, AS THEY HAVE SAID, INDEX AND SOVERIGN FUND MANAGERS HAVE INCREASED THEIR EXPOSURE TO FINANCIAL CONTRACTS. THERE'S NO QUESTION ABOUT THAT. THE DATA SPEAK FOR THEMSELVES. THOSE WHO SAY THIS HAS NO EASKET ON PRICES ARGUE THERE'S A SHORT FOR EVERY LONG THAT'S TRUE, BUT AT WHAT PRICE DOES A SHORT HAVE TO BE SHORT IN ORDER TO MEET THE DEMAND? IT IS LIKE ANY OTHER COMMADTY. IF WE LIVE IN A SMALL TOWN AND HAVE ALL OWNED A HOUSE AND SUDDENLY A PERSON THAT HAS MUCH MORE MONEY THAN THE REST OF US MOVED IN AND BOUGHT UP THE PRICE OF OUR HOUSES, THE INCREASE IN THE SIZE OF THE FUNDS THAT THESE PEOPLE HAVE IS SO ENORMOUS THAT THERE CAN BE NO DOUBT THAT THERE INCREASE IN THE DEMAND FOR PAPER BARRELS HAS BID UP THE PRICE FOR PAPER BARRELS. FINALLY, THE POTENTIAL MARKET POWER OF LARGE ENTITIES -- AND WE'RE TALKING NOW ABOUT MARKET POWER IN THE OLD FASHIONED SENSE OF THE WORD -- IS ENHANCED BY THE GENEROUS LEFRPB ALLOWED FOR COMMODITY TRADING. A COUPLE POINTS OF HOW THOSE OF US IN THE ANALYSIS BUSINESS TRY TO KEEP UP WITH THIS. FOR YEARS WE HAD A COMMITMENT ON TRADERS RORTES. THOSE WERE USEFUL BUT THE DATA ARE SO IMPERFECT THAT UNTIL RECENTLY WE DIDN'T KNOW HOW MUCH OF THE EFFECT OF SPECULATION WAS ACTUALLY SHOWN AS COMMERCIAL RATHER THAN NONCOMMERCIAL. THESE CHANGES IN THE TRANSPARENCY OF THE DATA HAVE BEEN VERY, VERY IMPORTANT TO HELP US UNDERSTAND WHAT'S REALLY GOING ON IN THE OIL MARKET. FINALLY, I AGREE WITH MOST OF THE RECOMMENDATIONS OF MY FELLOW PANEL MEMBERS. I THINK IT IS TIME FOR CONGRESS TO REQUIRE MUCH GREATER DISCLOSURE FROM ALL EXCHANGES THAT DEAL WITH U.S. TRADED COMMODITIES. I THINK IT IS TIME TO REQUIRE ALL EXCHANGES IN O.T.C. MARKETS TO IMPOSE AND ENFORCE LIMIT POSITIONS, AND I THINK IT IS TIME TO REDUCE THE LEVERAGE THAT ARE ALLOWED IN COMMODITY TRADING, IN PARTICULARLY OIL. LET ME MAKE A FINAL STATEMENT. WE LIKE TO BLAME OTHER PEOPLE FOR OUR PROBLEMS. WE BLAME THE CHINESE, SAUDIS, OPEC, BUT I REMEMBER EARLIER THIS MORNING THE STATEMENT FROM THE GREAT AMERICAN PHILOSOPHER POGO WHO SAID MANY YEARS AGO WE HAVE MET THE ENEMY, AND HE IS US.
00:21:54	Stupak, Bart	THANK YOU. THANK YOU ALL FOR YOUR TESTIMONY. WE BEGIN QUESTIONING. I THINK WE'LL HAVE ONE OR TWO ROUNDS WITH THIS PANEL AND TRY TO KEEP IT AT ABOUT THE FIVE MINUTE POINT. MR. GHIET, IF I MAY, YOUR TESTIMONY SAYS THE DOUBLING OF PRICES WAS DUE TO 345EU7BLY EXCESSIVE SPECULATION NOT DUE TO UNEXPECTED SHIFT IN MARKET FUND FAMENTMENT TALLS. WHAT DO YOU MEAN BY EXCESSIVE SPECULATION?
00:22:22	Gheit, Fadel	WE LOOK AT THE CASE WHEREABOUT $65 AND EVERYBODY EXPECTED OIL PRICES WILL COME DOWN, NOT GO UP. BECAUSE IT STARTED THE YEAR FURL AT ALMOST $50 OIL. THE END OF 2006 I BELIEVE THAT OPEC HAD TO CUT PRODUCTION TO PREVENT A MELT DOWN AS YOU CALLED IT, IN OIL PRICES. SO LAST YEAR AS OIL PRICES WENLT TO $65, ALL OF A SUDDEN WE HAVE OUTANNALS, AND THAT WAS THE SPECULATORS PUT THE OIL PRICES UP. THE FACT OF THE MATTER, EVEN OIL PRICES SHOULD BE GOING DOWN, NOT UP. BECAUSE THERE WAS NOT ENOUGH REFINING CAPACITY TO USE THE EXCESS OIL ON THE MARKET.
00:23:14	Stupak, Bart	SO IF WE HAVE EXCESS OIL ON THE MARKET NOW, THEN YOUR TESTIMONY, YOU GO ON. YOU SAY LARGE INVESTMENT BANKS KEEP FANNING THE FLAMES BY MAKING EXAGGERATED PRICES THEY BELIEVE THEY CAN ACHIEVE GIVEN THE GHOVET'S UNWILLINGNESS OR INABILITY TO MAKE THEM ACCOUNTABLE. GOLDMAN SACHS THINK IT WILL BE $212 AND THEY ARE THE LARGEST DEALER. WITHOUT SINGLING OUT ANY PARTICULAR COMPANY IS THERE AN ACTUALLY APPARENT CON FRICT OF INTEREST WHILE SPECULATING ON IT AT THE SAME TIME? IN OTHER WORDS, ARE THEY --
00:23:56	Gheit, Fadel	ABSOLUTELY. UNEQUIVOCALLY. IT BECOMES A SELF-FULFILLING PROPHECY. WHEN THE LARGEST TRADER PREDICT THE PRICE OF A COMMODITY, GUESS WHAT'S GOING TO HAPPEN?
00:24:10	Stupak, Bart	IT'S GOING TO GO UP.
00:24:11	Gheit, Fadel	FOLLOW THE LEADER.
00:24:14	Stupak, Bart	SECURITIES AND EXCHANGE COMMISSION PROHIBITS INSIDER TRADING WHEN INVESTMENT TWEEDS 5% IN A STOCK BUT THERE'S NOTHING COMPARABLE FOR COMMODITIES. WHAT WOULD BE THE BEST WAY TO ADDRESS THIS MATTER? SHOULD ALL BANKS AND NONCOMMERCIAL INTERESTS HAVE TO MAKE PUBLIC THEIR HOLDINGS OF OIL?
00:24:38	Gheit, Fadel	ABSOLUTELY. DISCLOSURE IS THE BEST THING. SOMEBODY SAID THEY OPERATE WELL IN THE DARK. WHEN YOU SHED A LIGHT ON THEM THERE'S NO PLACE FOR THEM TO HIDE. THERE'S A LOT OF CON FLICT OF INTEREST. THEY CREATED A FINANCIAL INSTRUMENT THAT NOBODY KNOWS HOW IT WORKS EXCEPT THEY THEMSELVES. THIS IS THE BLACK BOX, IF YOU WILL. IT PULLS ON CURRENCY, STOCKS, ON OTHER THINGS. ONCE YOU CATCH ONE THE OTHER WILL GO UNNOTICED. IT'S IMPOSSIBLE FOR US TO QUANTIFY THE IMPACT BECAUSE IT HAS A LOT MORE TO DO THAN ONLY THE COMMODITY.
00:25:15	Stupak, Bart	THANK YOU. MR. MASTERS, HOW MUCH DO YOU ESTIMATE CRUDE OIL PRICES HAVE BEEN INFLATED BY EXCESSIVE SPECULATION ABOVE SUPPLY AND DEMAND FUNDAMENTALS? IN RAISING CONCERNS ABOUT THE MULTITUDE OF COMMODITY INDEX INVESTING, ARE YOU SUGGESTING THAT SUPPLY AND DEMAND FUNDAMENTALS HAVE NO ROLE IN OIL PRICES?
00:25:39	Masters, Michael	THANK YOU, SIR. BASICALLY, WHAT I'M SUGGESTING IS THAT THERE IS SUPPLY AND DEMAND FUNDAMENTALS, BUT IN THIS CASE WHAT WE HAVE IS SUPPLY AND DEMAND AND DEMAND. WE HAVE GOT FINANCIAL INVESTOR DEMAND THAT WE HAVE NEVER SEEN BEFORE IN THESE MARKETS. THAT LONG ONLY FINANCIAL INVESTOR DEMAND THAT'S COME INTO THESE MARKETS HAS ALTERED THE PRICE DISCOVERY FUNCTION OF THE MARKETS AND ALTERED THE PRICE. SO WHEN WE TALK TO PHYSICAL PRODUCERS, REFINERS, CONSUMERS OF ENERGY, THEY ALL TELL US BASICALLY THE SAME THING THAT THEY THINK THAT CRUDE OIL SHOULD TRADE SOMEWHERE AROUND THE MARGINAL LEVEL OR THE QUI LIBRY YUM LEVEL OF THE COST TO PRODUCE MARGINAL PRODUCTION WHICH THEY TELL US IS IN THE NEIGHBORHOOD OF $65-$75 A BARREL.
00:26:37	Stupak, Bart	SO IT SHOULD BE AT $65-$75 NOW BEFORE SPECULATORS GET INTO IT?
00:26:42	Masters, Michael	THAT'S WHAT THEY TELL US. ONE OF THE IMPORTANT POINTS HERE IS THAT JUST AS I CAN'T TELL YOU WHAT THE NUMBER IS FROM SPECULATORS, I CAN'T TELL YOU -- OR NEITHER CAN ANYBODY ELSE -- WHAT THE SPECIFIC PRICE FROM COMMY THAT, INDIA, OR ANY OTHER COMPONENT IN THE PRICE, BUT I THINK THERE'S CLEARLY A GREAT DEAL OF PRICE IS COMING FROM EXCESSIVE SPECULATION.
00:27:09	Stupak, Bart	LET ME GO WITH CHART NUMBER TWO. LET ME ASK YOU THIS QUESTION. I'M USING COMMODITIES FUTURES TRADE COMMISSIONS NOW. WE ESTIMATE 70% OF THE TRADING ON THE INTERMEDIATE CRKT ARE DONE BY SPECULATORS AND 29 BY HEDGERS. THE LAWS WERE WEAKENED WITH SOFT ACCOUNTABILITY LEVELS INSTEAD OF HARD POSITIONS LIKE OIL. YOU RECOMMENDED SETTING HARD SPECULATIVE LIMITS FOR IMMEDIATE MONTH AND CUMULATIVE FOR ALL THE MONTHS. SPECULATIVE LIMITS RING OUT THE SMECKLATORS WITHOUT DAMAGING THE IMPORTANT ROLE OF TRADITIONAL SPECULATORS PLAY?
00:27:57	Masters, Michael	I THINK SO. THE ANALOGY WILLED USE HERE IS THAT IT'S LIKE FILLING UP YOUR TIRES WITH TIRE PRESSURE. IF YOUR TIRE PRESSURE, IF YOU NEED 30 POUNDS OF TIRE PRESSURE AND EWE ONLY PUT 10 POUNDS OF AIR IN THERE, YOU NEED MORE, YOU'RE NOT GOING TO BE DRIVING WELL. WHAT WE HAVE GOT HERE --
00:28:21	Stupak, Bart	WAIT A MINUTE. IT'S JUST GOING TO BUZZ FOR A SECOND HERE. OKAY. GO AHEAD.
00:28:35	Masters, Michael	WHAT WE HAVE GOT HERE IS A SITUATION IN WHICH PEOPLE ARE TRYING TO PUT 60 OR 90 OR 120 POUNDS OF PRESSURE IN THE TIRE. EVENTUALLY THE TIRE IS GOING TO EXPLODE. IT DOESN'T WORK. SO WE NEED SUFFICIENT SPECULATION, BUT WE DON'T NEED UNLIMITED SPECULATION. A LITTLE SPECULATION HELPS GREASE THE ENGINE, HELPS GREASE THE WHEELS. IT ALLOWS THE PURPOSE OF THE FUTURES MARKETS TO WORK, WHICH IS PRICE DISCOVERY AND RISK REDUCTION FOR ACTUAL PHYSICAL HEDGERS. THE GENIUS OF THE 1936 COMMODITY EXCHANGE ACT WAS THAT IT ALLOWED THE FUNCTIONING OF THE MARKETS. IT ALLOWED PARTICIPATE TORS TO PARTICIPATE IN THE MARKETS, BUT IT DIDN'T LET SPECULATORS DOMINATE THE MARKETS. SO POSITION LIMITS ALLOW ENOUGH SPECULATION TO OCCUR TO GREASE THE WHEELS, BUT THEY DON'T ALLOW SPECULATORS TO DOMINATE THE PRICE DISCOVERY FUNCTION OF THE MARKET. THAT'S THE IDEA.
00:29:39	Stupak, Bart	ONE LAST QUESTION AND THEN TO MR. WHITFIELD AND WE HAVE A SECOND ROUND BECAUSE I HAVE MORE QUESTIONS. BOTH SECRETARY PAULSON AND BAUD MAN ARGUED SPECULATIONS PLAYED NO ROLE IN THE RISING PRICES. THE CFTC SEEMS TO AGREE WITH THEM. WHAT ARE THE COSTS OF INACTION IF CONGRESS FAILS TO ADDRESS THE MATTER?
00:30:06	Masters, Michael	KAINE HAS AN EXPRESSION. HE SAID IN THE LONG RUN, WE'RE ALL DEAD. THIS IS A SITUATION IN WHICH THIS CRISIS NEEDS TO BE SOLVED. THIS IS AN ACUTE CRISIS. WHAT WE HAVE GOT IS SOMEONE WHO'S MORBIDLY OVERWEIGHT. THAT PERSON CLEARLY, CHRONIC SOLUTIONS TO HIS PROBLEM. HE PROBABLY NEEDS TO DIET, EXERCISE. THERE'S A LOT OF THINGS THAT HE NEEDS TO DO BUT RIGHT NOW, HE'S HAVING A HEART ATTACK. AND IF WE DON'T TAKE ACTION RIGHT NOW, THEN WE'RE GOING TO HAVE A REAL PROBLEM. THIS IS AN ACUTE PROBLEM NOW, AND THIS IS A PROBLEM THAT COULD BE SOLVED VERY QUICKLY WITH CHANGES IN THE REGULATORY FRAMEWORK. SO I THINK, AS I SAID IN MY TESTIMONY, THE TIME FOR STUDIES AND EXAMINATION HAS PASSED. LIKE THE FDA DOES, YOU KNOW, LET'S GO THE STUDIES BEFORE WE ALLOW THE APPROVAL OF A DRUG TO COME TO MARKET. SO BASICALLY, I THINK THAT IF WE DO SOME OF THESE ACTIONS, SOME OF THE THINGS I'M TALKING ABOUT, WE CAN GREATLY DEAL WITH THIS AMPLIFICATION OF PRICES CREATED BY EXCESSIVE SPECULATION. THEN IT WILL HAVE TIME TO DEAL WITH SOME OF THE CHRONIC SOLUTIONS FOR THE ENERGY INFRASTRUCTURE OF THE COUNTRY.
00:31:39	Stupak, Bart	THANK YOU.
00:31:42	Barton, Joe	PARLIAMENTARY INQUIRY. WE NORMALLY DO 10-MINUTE QUESTIONS. YOU TOOK ALMOST 10-MINUTES. ARE WE DOING FIVE BECAUSE OF THE NUMBER OF PEOPLE?
00:31:52	Stupak, Bart	PROBABLY BECAUSE OF THE NUMBER OF PEOPLE.
00:31:54	Barton, Joe	THANK YOU.
00:31:57	Whitfield, Edward	MR. MASTERS, YOU INDICATED THIS PROBLEM COULD BE SOLVED RATHER QUICKLY IF WE TOOK STEPS REGARDING THE REGULATORY MONITORING OF SPECULATORS IN THE MARKET. LET'S SAY CONGRESS PASSED LEGISLATION ADOPTING THESE REGULATORY CHANGES AND SENT IT PAST THE PRESIDENT SIGNED IT. HOW SOON WOULD WE SEE A SIGNIFICANT REDUCTION IN RETAIL GASOLINE PRICES?
00:32:30	Masters, Michael	WITHOUT BEING ABLE TO PREDICT THE FUTURE, MY ESTIMATION WOULD BE WITHIN 30 DAYS.
00:32:36	Whitfield, Edward	WITHIN 30 DAYS OF THE PRESIDENT SIGNING THE BILL?
00:32:38	Masters, Michael	YES, SIR.
00:32:40	Whitfield, Edward	I'M GOING TO ASK YOU ANOTHER QUESTION. HOW MUCH WOULD THEY BE REDUCED ROUGHLY?
00:32:48	Masters, Michael	I'M NOT SURE I HAVE A CRYSTAL BALL THAT GREAT. I WOULD JUST GO BACK TO WHAT I SAID EARLIER. MY SENSE IS THEY WOULD PROBABLY -- PRICES WOULD PROBABLY DROP OVER A REASONABLY SHORT PERIOD OF TIME BACK TO SOMEWHERE CLOSSER TO THE MARGINAL PRODUCTION COST OF OIL.
00:33:10	Whitfield, Edward	OF $65-$75.
00:33:12	Masters, Michael	I THINK IT'S REASONABLE TO CONCLUDE THAT'S ABOUT HALF WHERE PRICES ARE TODAY. I WOULD THINK THAT GASOLINE WOULD REFLECT THAT IN RELATIVELY SHORT ORDER.
00:33:22	Whitfield, Edward	SO YOU ARE SAYING IF WE ADOPT THESE REGULATORY CHANGES WE COULD ALMOST CUT THE RETAIL PRICE OF GAS IN HALF. IN A RELATIVELY SHORT PERIOD OF TIME?
00:33:32	Masters, Michael	YES.
00:33:42	Whitfield, Edward	DR. CAPLES, WHAT DO YOU SAY?
00:33:45	Krapels, Edward	TO THE CHAGRIN OF SOME OF MY COLLEAGUES AT THE COMPANY I WORK IN, I TEND TO AGREE WITH MR. MASTERS. I THINK THE AMOUNT OF SPECULATION IS SUBSTANTIAL. I DON'T THINK IT WOULD TAKE 30 DAYS AFTER THE PRESIDENT SIGNING THE BILL. I THINK IT WOULD HAPPEN MORE QUICKLY THAN THAT. ONCE THE MARKET UNDERSTOOD THIS WAS HAPPENING A LOT OF FUNDS WOULD WITHDRAW THEIR POSITIONS AND TRY TO LIQUIDATE IN AS ORDERLY FASHION AS THEY COULD.
00:34:12	Whitfield, Edward	MR. DIWAN, WHAT DO YOU SAY?
00:34:13	Diwan, Roger	I DON'T KNOW HOW QUICKLY IT TAKES TO GET PRICES DOWN BUT IT'S CLEAR PRICES WILL REFLECT CLOSER TO MARGINAL COST OF PRODUCING OIL. I THINK THE MARGINAL COST IS HIGHER THAN WHAT MR. MASTER JUST SAID BUT THAT COULD COME FAIRLY QUICKLY. YOU CAN OVERSHOOT ON EITHER SIDE. WHAT'S INTERESTING IS THAT THE LONG-TERM PRICE CURVE, HOW FUTURES PRICES OIL DO FIVE, 10 YEARS NOW IS AROUND $140 AND THAT'S THE EXPECTATION IT CONTINUES TO STAY THAT LEVEL WHICH DOESN'T MAKE A LOT OF SENSE.
00:34:50	Gheit, Fadel	WELL, LET ME START --
00:34:52	Stupak, Bart	PULL THE MIC UP.
00:34:54	Gheit, Fadel	LET ME JUST START BY SAYING THE MARGINAL COST IS A MOVING TARGET BECAUSE IT'S THE CHICKEN OR EGG SITUATION. THE REASON WE HAVE HIGHER MARGINAL COST IS BECAUSE WHERE OIL CAN BE OBTAINED CHEAPLY WE'RE BLACKED OUT, WHETHER IT'S RUSSIA, IRAQ, RUSSIA CAN PRODUCE OIL UNDER $10 A BARREL. IRAQ CAN PRODUCE IT AT EVEN $7 OR LOWER. THE COST IS A MOVING TARGET. THE FACT OF THE MATTER IS THAT IF YOU LOOK AT THE FINDING AND DEVELOPMENT COST OF THE INDUSTRY IN THE FIVE YEARS IT AVERAGED LESS THAN $15. THERE IS A RULE OF THUMB THAT THE PRICE OF THE COMMODITY IS NOT SUSTAINABLE AT MORE THAN TRIPLE THAN REPLACEMENT COST SO IT SHOULD BE AROUND $45 AND $60. MEETING WITH THE HEAD OF MOST OF THE OIL COMPANIES THAT WE COVER, ONLY A YEAR AGO, THEY WERE AMAZED AT THE SUSTAINABILITY OF $60 OIL. THE CHAIRMAN OF THE BOARD OF THE LARGEST OIL COMPANY OF THE WORLD FIVE YEARS AGO SAID AT THE TIME HE DOESN'T SEE ANY JUSTIFICATION FOR OIL ABOVE $40. SO THE WORLD HASN'T CHANGED SIGNIFICANTLY OVER THE PAST FEW YEARS TO JUSTIFY $140. THEN YOU HAVE PEOPLE PREDICTING $200 OIL. IF WE DON'T DO ANYTHING ABOUT IT, THEIR PREDICTION WILL COME TRUE.
00:36:18	Whitfield, Edward	BUT YOU'RE SAYING THAT THE PRODUCTION OF OIL, THOUGH, IS WAY OVER $15 A BARREL. PRODUCTION --
00:36:27	Gheit, Fadel	IT JUST REPLACED THE COST OF THE RESERVE IN THE GROUND. THERE IS ANOTHER 15 OR 20 DOLLARS TO EXTRACT IT THEN $15-$20 PER PROFIT. THAT'S HOW IT WORKS. IT'S THE ONE-THIRD RULE.
00:36:47	Whitfield, Edward	YEAH. MY TIME HAS EXPIRED.
00:36:50	Stupak, Bart	MR. INSLEE FOR QUESTIONS, PLEASE? I SHOULD NOTE MR. ROSS HAS JOINED US ON THE FULL COMMITTEE. WE APPRECIATE IT IF YOU SUBMIT AN OPENING STATEMENT, WE'LL ACCEPT IT AND HAVE TIME TO ANSWER QUESTIONS. MR. INSLEE?
00:37:05	Guilford, Eugene	THANK YOU. MR. MASTERS FROM MY OPENING COMMENT YOU KNOW I HAVE MINIMAL HIGH REGARD FOR THIS ADMINISTRATION'S CAPABILITY OF DEALING WITH THIS PROBLEM, AND I NOTE THAT IT WAS SOMETHING LIKE NINE DAYS AFTER YOU PUT OUT A SUGGESTION IN SENATE TESTIMONY THAT WE NEEDED INFORMATION TO HAVE A MORE TRANSPARENT MARKET. IS THERE ANY REASON FOR THE CFTC NOT TO HAVE BEEN ENGAGED IN THIS INFORMATION GATHERING BEFORE YOUR SENATE TESTIMONY?
00:37:37	Masters, Michael	NOT THAT I CAN THINK OF, NO.
00:37:40	Inslee, Jay	AND TELL ME WHAT TOOLS WITH EXISTING STATUTES DO YOU THINK THE CFTC HAS TO AT LEAST GO IN THE RIGHT DIRECTION IN THIS REGARD?
00:37:56	Masters, Michael	ONE OF THE THINGS I READ EARLIER IN MY TESTIMONY IS THE COMMODITY EXCHANGE ACT ENFORCING THAT AGREEMENT, UMM, I WON'T READ IT AGAIN. BUT WE FEEL LIKE IF YOU TREAT INDEX SPECULATORS, WHICH WERE EFFECTIVELY ACTING VERY MUCH LIKE EACH OTHER, THEY LOOK LIKE ONE LARGE SPECULATOR. IF YOU ENFORCE THE PROVISIONS OF THAT ACT THROUGH THE CFTC, MAYBE THAT WOULD BE THROUGH THE FTC, I'M NOT SURE. BUT EFFECTIVELY YOU WOULD GREATLY REDUCE THEIR ABILITY TO ENGAGE IN INDEX SPECULATION. SO THAT'S CERTAINLY SOMETHING THAT YOU COULD DO. I'M NOT SURE YOU NEED MUCH CONGRESSIONAL ACTION AT ALL TO ACCOMPLISH THAT.
00:38:55	Inslee, Jay	ISN'T IT TRUE THAT THE TC HAS BEEN ISSUING FOR YEARS AND HAD FULL KNOWLEDGE THERE WERE MASSIVE POSITIONS BEING TAKEN IN THESE INDEXES?
00:39:05	Masters, Michael	THAT'S CORRECT.
00:39:08	Inslee, Jay	COULD YOU -- THIS IS AN OPEN QUESTION. COULD YOU GENTLEMEN COMPARE AND CONTRAST THE SITUATION? MR. MASTERS USES THE TERM DEMAND ON DEMAND, I THINK, AS I UNDERSTOOD HIS TESTIMONY, ABOUT THE EFFECTS OF THIS. DOES THIS DEMAND ON DEMAND PROBLEM EXIST IN OTHER COMMODITIES, AND COULD YOU COMPARE THIS TO OTHER COMMODITIES? SHOULD WE COMPARE IT TO OTHER COMMODITIES?
00:39:37	Krapels, Edward	I THINK A SIMILAR SYNDROME EFFECTS EVERY COMMODITY SUBJECT TO THE GSCI. THE DEMAND FOR PAPER BARRELS OR PAPER POSITIONS OR PAPER CONTRACTS IS A SEPARATE ISSUE FROM THE DEMAND FOR PHYSICAL BARRELS AND FOR MANY YEARS WE HAVE LOOKED AT THE DEMAND FOR PAPER BHARLES AND ASKED THE QUESTION WHAT DOES IT TAKE TO BALANCE THAT MARKET? IF YOU HAVE -- YOU REMEMBER ECONOMY 101 -- A SUDDEN INCREASE IN A DEMAND FOR COMMODITY IS A SHIFT IN DEMAND CURVE TO THE RIGHT. THE ONLY WAY YOU CAN GET THAT MARKET TO EQUAL IS IF PRICES GO UP A LOT. SO A DEMAND SHOCK, WHICH IS WHAT MR. MASTERS DESCRIBED TODAY IS EXACTLY WHAT'S OCCURRED IN THE OIL MARKET AS A COMMOD STATION OF OIL.
00:40:33	Inslee, Jay	COULD YOU EXPLAIN THE FINANCIALIZATION OF OIL COMPARE TODAY THE LACK OF FINANCIAL FINANCIALIZATION OF OTHERS?
00:40:43	Krapels, Edward	I THINK OTHERS HAVE BEEN FINANCIALIZED. WHAT MAKES OIL SO INTERESTING IS THAT IT'S A GLOBAL COMMODITY. I THINK A LOT OF ANALYSTS OF THE CORRELATION OF OTHERS HAVE CONCLUDED OIL MAKES A GOOD PORTFOLIO ADDITION FOR A LOT OF INVESTORS. SO A LOT OF THOUGHT WENT INTO THE PENSION FUNDS MOVEMENT INTO COMMODITIES. WHEN THEY MOVE INTO COMMODITIES THEY MOVE INTO ENERGY FRFMENT THEIR PERSPECTIVE IT'S A RATIONAL STRATEGY AND UNLIKE OTHER SPECULATORS THERE'S NO MALICE AFORETHOUGHT HERE. THEY SIMPLE DO WHAT THEY HAVE TO DO TO KEEP THEIR PENSIONERS HAPPY. SO IT'S A KIND OF ACCIDENTLE OVERFLOW, IF YOU WILL, INTO THE RELATIVELY SMALL COMMODITY MARKET.
00:41:30	Inslee, Jay	THANK YOU. I WANT TO ASK YOU SFERS THE TIMING OF IMPACT, IF OUR OPTIONS ARE TO DRILL SOME OTHER PLACES WE HAVEN'T DRILLED, DOMESTICALLY IN THE YICE, WHICH I'M TOLD WILL TAKE SEVERAL YEARS OR DECADES AND TAKING SOME ACTION TO REIGN IN SOME OF THE EXCESSIVE SPECULATION, WHICH WILL HAVE A QUICKER RESPONSE, PRICE RESPONSE?
00:41:59	Gheit, Fadel	WELL, WE CAN PUT AN END TO SPECULATION VERY, VERY QUICKLY. WE CANNOT REDUCE OIL OUT OF THIS UNTOUCHED AREAS QUICKLY. IT WOULD TAKE THREE TO FIVE YEARS REALISTICALLY SPEAKING IF WE START TODAY, TO HAVE MEANINGFUL IMPACT ON OUR SUPPLY/DEMAND FUNCTION. SPECULATION WILL PUT AN END TO IT IN 30 DAYS. IF THERE'S A WILL AND WAY TO DO IT, WE CAN DO IT.
00:42:26	Inslee, Jay	THERE'S A WILL, AND WE'RE LOOKING FOR A WAFMENTE WE HOPE TO GET BOTH. THANK YOU.
00:42:37	Stupak, Bart	MR. BARTON FOR QUESTIONS.
00:42:38	Barton, Joe	THANK YOU. I COULD ASK QUESTIONS ALL DAY SO I'M GOING TO TRY TO LIMIT MYSELF. MY FIRST QUESTION -- I WANT TO MAKE SURE I UNDERSTAND GENERICALLY WHAT YOU GUYS DO? DO YOU RISK YOUR OWN MONEY OR DO YOU ADVISE OTHERS ON HOW TO RISK THEIR MONEY?
00:42:54	Gheit, Fadel	I WILL START. I DON'T RISK ANYBODY'S MONEY.
00:42:58	Barton, Joe	YOU DON'T ADVISE ANYONE?
00:43:01	Gheit, Fadel	I AM A RESEARCH ANALYST. I COVER 22 OIL AND GAS COMPANIES. THE OIL AND THE U.S. I TALK TO THESE COMPANIES REGULARLY. I HAVE KNOWN THEM 22 YEARS.
00:43:11	Barton, Joe	I HAVE LIMITED TIME. I NEED TO KNOW IF YOU ARE ADVISING --
00:43:16	Gheit, Fadel	WE ADVISE INVESTORS. WE DON'T ADVISE ANYBODY TO BUY OR SELL CRUDE FUTURE. WE SAY WHICH STOCKS TO ARE ATTRACTIVE.
00:43:29	Barton, Joe	I WOULD LIKE THE NEXT MAN TO ANSWER.
00:43:32	Diwan, Roger	I NEVER INVESTED IN THE OIL MARKET. I'M AN ADVISOR TO A LOT OF PEOPLE.
00:43:37	Masters, Michael	THE ANSWER IS THAT WE TAKE RISKS WITH OUR OWN MONEY AND OTHER PEOPLE'S MONEY. NOT IN COMMODITIES FUTURES, THOUGH.
00:43:46	Krapels, Edward	WE ARE CONSULTANTS TO THE OIL INDUSTRY.
00:43:50	Barton, Joe	OKAY. SO YOU'RE NOT PLAYING IN THE MARKET THAT YOU PUT YOUR OWN MONEY UP OR DOWN. YOU ARE TRYING TO GIVE GOOD ADVICE ON WHAT THE MARKET IS. NEXT QUESTION IS MR. DIWAN. IF WE HAD 100 MILLION BARRELS OF OIL PRODUCTION CAPACITY AVAILABLE IN THE WORLD MARKET RITHES NOW -- IN OTHER WORDS WE COULD PRODUCE 100 MILLION BARRELS A DAY -- SIT YOUR OPINION THE PRICE WOULD BE BASED ON THE COST OF PRODUCTION AS OPPOSED TO THE MARGINAL DEMAND PRICE WE HAVE TODAY?
00:44:24	Diwan, Roger	PRICES WOULD BE LOWER BECAUSE THE MARKET WILL BE CONSTANTLY FACING A RISK THAT SOME OF THE OPEC PRODUCERS WILL OVERPRODUCE AND INCREASE STOCKS, WHAT WE HAD IN 1998 WHEN DEMAND COLLAPSED. WHEN YOU HAD A LARGE CAPACITY YOU GIVE INCENTIVE TO ANYBODY WHO OWNED THAT CAPACITY TO PRODUCE.
00:44:43	Barton, Joe	WHICH IS WHAT WE HAD UNTIL ABOUT FIVE YEARS AGO ACCORDING TO YOUR CHART.
00:44:48	Diwan, Roger	AND WE BUILD THAT SPARE CAPACITY OVER THE 1980'S WHEN WE SIGNIFICANTLY REDUCED DEMAND OR WHEN PRICES WERE HIGH. THE PROBLEM WE HAVE RIGHT NOW HERE IS THAT WE HAVE HIGH PRICES BUT THAT HAS NOT CHANGED THE SUPPLY FUNCTION. WE HAVE NOT BEEN ABLE TO INCREASE OUR SUPPLY GLOBALLY OUTSIDE OF OPEC OVER THE LAST FIVE YEARS, WHICH TELLS ME THERE IS A PROBLEM AND THAT PROBLEM IN A WAY IS WHAT'S ATTRACTING A LOT OF MONEY INTO THE OIL COMPLEX.
00:45:22	Barton, Joe	I WANT TO GO TO DR. KRAPELS NEXT. I HAVE HAD CONVERSATIONS WITH ALL OF THE CEO'S OF THE AMERICAN OIL COMPANIES IN THE LAST FOUR OR FIVE YEARS, IN SOME CASES THE LAST FOUR OR FIVE WEEKS. WHAT MR. GHIET SAID EARLIER -- HE DIDN'T MENTION BY NAME, BUT I KNOW WHO HE'S TALKING ABOUT. BECAUSE I HAD THE SAME CONVERSATION TWO YEARS AGO WHEN THE PRICES STARTED JUMPING UP TO THE $70-80 RANGE I WAS TOLD THOSE PRICES COULD RNT LAST. THE MAJORS DIDN'T MAKE THE CAPITAL INVESTMENTS IN SOME CASES THEY DIDN'T HAVE PLACES TO INVEST IN. IN OTHER CASES THEY JUST DIDN'T BELIEVE THAT THE HIGH PRICES WERE REALISTIC. DR. KRAPELS, DO YOU BELIEVE NOW THERE IS ENOUGH EVIDENCE OVER THE LAST TWO YEARS IT WOULD MAKE SENSE TO THE MAJOR PRIVATELY OWNED OIL COMPANIES OF THE YICE TO MAKE THESE HUGE INVESTMENTS BASED ON 100 $OIL OR $120 OIL?
00:46:26	Krapels, Edward	NO, SIR. I DON'T THINK THEY WILL MAKE THOSE INVESTMENTS. I THINK THEY WILL BE LOOKING AT THE MARGINS SOMETHING LIKE THE "TARZAN"S IN CANADA AS THE LARGE SOURCE OF MARGINAL SUPPLY AND THAT COULD BE RECOVERED IN THE $60 PER BARREL CATEGORY. I DON'T KNOW A SINGLE OIL COMPANY THAT WOULD MAKE $100 INVESTMENTS BECAUSE I THINK THEY BELIEVE THE PRICE IS UNSUSTAINABLE.
00:46:49	Barton, Joe	LET ME ASK THE NEXT QUESTION. SINCE YOU GENTLEMEN ARE REPUTEDLY SOME OF THE MOST EXPERT PEOPLE IN THE UNITED STATES, ON WHERE THE OIL MARKETS ARE, IF YOU WERE ADVISING EXXON MOBILE OR CHREVRON, TEX CO, CON COPHILLIPS, WHAT PRICE WOULD YOU ADVISE THEM ON TO BASE THEIR INVESTMENT DECISIONS ON IN TERMS OF MAJOR CAPITAL INVESTMENTS? WHAT'S THE PRICE YOU WOULD ADVISE THEM SNON
00:47:21	Gheit, Fadel	LET ME TAKE THIS QUESTION SINCE I TALK TO THESE COMPANIES ON A REGULAR BASIS. I WOULD SAY BETWEEN $45 AND NO MORE THAN $60. ACTUALLY THEY SAID THEMSELVES THEY THINK ANY OIL COMPANY THAT SPENDS OIL PRICE ABOVE $60 THEY WOULD BE DISAPPOINTED.
00:47:40	Diwan, Roger	IT'S A CHICKEN AND EGG THING HERE BECAUSE WHAT YOU HAVE AT THE SAME TIME ARE I'LL PRICES RISING BUT IF YOU INVEST TOO MUCH MONEY WALL STREET WILL SLAM YOU BECAUSE YOU OVERINVEST. IF YOU INVEST YOU BELIEVE THESE PRICES WILL STAY. I THINK CERTAIN MARGINAL PROJECT RIGHT NOW ARE INVESTED AT $100. ONE OF THE REASONS I THINK THE PRICE IS HIGH IS BECAUSE WE NEED TIN PUT.
00:48:03	Barton, Joe	WHAT PRICE WOULD YOU PUT YOUR REPRESENTATION BEHIND?
00:48:06	Diwan, Roger	BELOW $100.
00:48:08	Barton, Joe	OKAY. NEXT. MR. MASTERS.
00:48:14	Masters, Michael	THAT'S NOT GOING TO BE MY FIELD OF EXPERTISE BUT I WOULD THINK THAT PRICE WOULD BE BELOW $100.
00:48:22	Barton, Joe	OKAY. DR. KRAPELS.
00:48:26	Krapels, Edward	DID YOU SEE THE MOVIE "THERE WILL BE BLOOD"?
00:48:28	Barton, Joe	I HAVE NOT. I DID KNOW WHO POGO WAS. I'M ONE OF THE FEW PEOPLE OLD ENOUGH TO REMEMBER HIM, BUT I HAVEN'T SEEN --
00:48:37	Krapels, Edward	THERE'S WOONEDERFUL SCENE OF A MAN DIGGING A DEEP WELL UNTIL HE REACHES OIL. I WENT TO THE MOVIE AND SAID THAT'S THE MARGINAL PRODUCER. HE DUG A WELL BY HAND THAT'S $130 PER BARREL OIL. I'M IN THE $60 CAMP.
00:48:52	Barton, Joe	OKAY. AND WE ARE GOING TO HAVE ANOTHER ROUND, MR. CHAIRMAN. OKAY. I YIELD BACK.
00:48:58	Stupak, Bart	THANK YOU. MR. GREEN FOR QUESTIONS.
00:49:05	Green, Gene	THANK YOU, MR. CHAIRMAN, AND LIKE MY COLLEAGUES I APOLOGIZE FOR BEING LATE BECAUSE THIS IS AN ISSUE THAT'S SO IMPORTANT TO OUR COUNTRY, AND I WOULD LIKE TO ASK YOU NOW TO HAVE MY STATEMENT PLACED IN THE RECORD.
00:49:17	Stupak, Bart	WITHOUT OBJECTION.
00:49:19	Green, Gene	MR. MASTERS, ACCORDING TO THE CFTC DATA, INSTITUTIONAL INVESTORS ARE ON THE LONG SIDE OF THE MARKET AND BETTING PRICES CONTINUE TO RISE. DO YOU THINK THAT'S TRUE WITH ENERGY AS WELL? IF SO WHY IS THAT GIVEN MANY ANALYSTS BELIEVE PRICES ARE TOO HIGH AND DUE TO A DOWNWARD CORRECTION?
00:49:41	Masters, Michael	SO, UMM, THE WAY THAT INSTITUTIONAL INVESTORS TODAY ARE PREDOMINANTLY INVESTING IN THE COMMODITIES FUTURES MARKETS IS THROUGH A STRATEGY CALLED INDEX REPLICATION. THIS IS BASED ON THE GOLDMAN SACHS AND THE DOW JONES AIG INDEX COMMODITIES. IN THE GOLDMAN SACHS THERE'S 25 KEY COMMODITIES. WHEN THEY INVEST THEY INVEST IN EVERY ONE OF THESE COMMODITIES SIMULTANEOUSLY MANY TIMES. THEY ARE BUYING IN INDEX. SO WHATEVER WEIGHT THAT INDEX OR THAT SPECIFIC COMMODITY FUTURE IS, DEM THAT INDEX IS WHAT THEY ARE GOING TO INVEST IN THAT COMMODITY SO. FOR INSTANCE, WEST TEXAS INTERIMMEDIATE, THEY ARE GOING TO PUT 40% OF EVERY DOLLAR INTO WEST TEXAS INTERIMMEDIATE BECAUSE.40 GUESS BY VIRTUE OF THE INDEX. FOR SOME OF THE OTHER COMMODITIES, LIKE WHEAT, I BELIEVE THAT'S 2%.
00:50:48	Green, Gene	I ONLY HAVE FIVE MIGHT BES. WE MAY HAVE A SECOND ROUND BUT IF YOU COULD GIVE US MORE CONCISE, ITCH OTHER QUESTIONS.
00:50:55	Masters, Michael	SURE. OKAY.
00:50:58	Green, Gene	BUT THAT'S GENERALLY --
00:51:00	Masters, Michael	THEY ARE SPREADING IT AROUND.
00:51:04	Green, Gene	HAS A RAPID RUN UP ADVERSELY EFFECTED OIL PRODUCERS WHO SOLD THEIR PRODUCTION AT LOWER PRICE EARLIER AND LED TO MARGIN CALLS, AND HOW COSTLY HAS THIS BEEN?
00:51:15	Masters, Michael	THAT'S BEEN A VERY BIG ISSUE. SOME OF THE INVESTMENT BANKS HAVE SAID WELL WE SHOULD BE APPLAUDED FOR HELPING DRIVE UP PRICES BECAUSE THIS HAS ALLOWED OTHER HEDGERS TO BE ABLE TO HEDGE AT HIGHER PRICES. AND I AGREE WITH THEM THAT THEY HELP DRIVE UP PRICES. MORE IMPORTANTLY, THOUGH, --
00:51:37	Barton, Joe	I THINK THEY WOULD BE IN A SMALL MINORITY IN OUR COUNTRY, EVEN FROM THE OIL PATCH WHERE I COME FROM.
00:51:44	Masters, Michael	YES, SIR. YOU KNOW, RIGHT NOW THE PROBLEM IS, AS YOU SUGGEST, MANY PEOPLE THAT USED TO HEDGE BECAUSE OF THE PRICE VOLATILITY OF THE MARKETS ARE NOW NOT HEDGING SO SOME OF THE SUPPLY THAT WOULD HAVE COME ON THE MARKET IS NOT COMING ON THE MARKET BECAUSE PEOPLE ARE LITERALLY AFRAID TO HEDGE. WE HAVE TAUBED TO PHYSICAL PRODUCERS SOME OF WHICH DID HEDGE AT LOWER PRICES AND HAD TO COVER OR REBUY WHAT THEY SOLD AT HIGHER PRICES WHICH FORCED THEM OUT OF BUSINESS.
00:52:15	Green, Gene	THANK YOU. I HAVE A QUESTION FOR ALL THE PANELISTS. JOHN OF MYSELFER, THE PREVIOUS CEO OF SHELL RECENTLY SUGGESTED RESTRICTING ACCESS TO SUPPLIES U.S. POLICY MAKERS SEND A MESSAGE THAT OUTPUT WILL BE RESTRAINED THEREBY DRIVING UP THE PRIFMENTSE HE SAID THERE IS NO CONFIDENCE WE CAN EXPLORE AND PRODUCE MORE BARRELS GIVEN THAT THE YICE IS NOT LETTING US DO IT AND IT'S PREVENTING OPTIMISTIC FUTURES. DO YOU AGREE AND WOULD THAT SEND THE RIGHT SIGNALS TO INVESTORS OR FOREIGN NATIONS THAT THE U.S. IS SERIOUS ABOUT MEETING ITS OWN ENERGY NEEDS THEREBY REDUCING SPECULATIVE
00:53:01	>>
00:53:02	Gheit, Fadel	I AGREE.
00:53:03	Diwan, Roger	I THINK THE PROBLEM IS BIGGER THAN JUST THE UNITED STATES BEING ABLE TO PRODUCE MORE. THE QUESTION IS CAN THE WORLD PRODUCE MORE AND WHERE IS THAT OIL GOING TO COME FROM.
00:53:13	Krapels, Edward	I AGREE WITH HIM. THERE'S A LIMIT TO HOW MUCH MORE WE CAN PRODUCE EVEN IF WE OPEN EVERYTHING UP, ALL OF OUR FRONTIER AREAS, BUT IT WOULD SEND THE RIGHT SIGNAL IF WE DID.
00:53:25	Masters, Michael	I'LL GO BACK TO WHAT WE SAID BEFORE. THERE'S AN ACUTE PROBLEM AND A CHRONIC PROBLEM AND THE CHRONIC PROBLEM IS LONG-TERM ENERGY SECURITY. THE ACUTE PROBLEM IS FINANCIAL SPECULATION AND THE COMMADTIES FUTURE MARKETS.
00:53:40	Green, Gene	MR. CHAIRMAN, I'LL WAIT FOR THE SECOND PANEL BUT I APPRECIATE THE OPPORTUNITY. THERE'S A LOT OF THINGS WE CAN DO AND I THINK YOUR EFFORT IS TO LOOK AT THE SPECULATOR MARKET BUT THERE ARE OTHER THINGS WE COULD DO THAT WOULD MAKE THE PRICE OF FUEL CHEAPER FOR OUR CONSITUENTS.
00:53:56	Stupak, Bart	THANK YOU. MR. WALDEN? QUESTIONS. SORRY.
00:54:01	Walden, Greg	THANK YOU. I APPRECIATE THAT FARMERS ARE GOOD AT REDUCING THE PRICE OF THEIR CROPS. THEY DO SO BY REACTING TO SIGNALS. IF CORN IS HIGH THEY PLANT WHAT'S HIGH. AS A COMMODITY THE OIL MARKET ISN'T MUCH DIFFERENT. YOU WOULD THINK THAT WITH PRICES AT THIS LEVEL THERE WILL BE ADD EXPLORATION SO YOU COULD TAKE ADVANTAGE OF IT. MR. DIWAN, IS THAT NOT THE CASE IN THE OIL MARKET?
00:54:29	Diwan, Roger	WELL, YOU NEED TO HAVE ACCESS TO AREAS WHICH HAVE GOOD RESERVES TO EXPLORE AND PRODUCE. AND THIS IS REALLY THE FIRST TIME WHEN YOU HAVE SUCH AN INCREASE IN PRICES WHERE WE HAVE NOT HAD THE RESPONSE ON THE SUPPLY SIDE. THERE'S A LOT OF REASON FOR THAT. NOT ONLY THE FACT THAT YOU DON'T HAVE ACCESS TO THE BEST BUSINESS IN THE WORLD. 77 WERS OF THE WORLD RESERVE ARE CLOSED.
00:54:52	Walden, Greg	WHERE ARE THOSE BEST PLACES?
00:54:55	Diwan, Roger	OPEC COUNTRIES, MEXICO, A NUMBER OF AREAS WHERE YOU DON'T HAVE ACCESS TO THE RESERVES. THE OTHER ISSUE IS YOU HAVE A LOT OF ANALING FIELD WHERE THE DECLINE RATES ACCELERATE. SO IF YOU BRING NEW SUPPLY IT REPLACES WHAT WE LOSE EVERY YEAR. WE CALL IT THE WEDGE. THAT WEDGE IS GROWING BIGGER, BIGGER EVERY YEAR SO IF YOU BRING FOUR MILLION NEW SUPPLY THIS YEAR YOU STAY PUT BECAUSE YOU HAVE LOST FOUR MILLION PER DAY.
00:55:21	Walden, Greg	SO SUPPLY AND DEMAND DOES PLAY A SIGNIFICANT ROLE IN THE DECISION MAKING BY THOSE IN THE MARKET?
00:55:27	Diwan, Roger	ABSOLUTELY, AND IT'S THE SUPPLY NARRATIVE, THE NOTION THAT WE DO NOT HAVE SUPPLY INCREASE IN THE FUTURE WHICH HAS BROUGHT UP A LOT OF THE FINANCIAL PLAYERS ON THE MARKET BECAUSE BASICALLY THEY ARE NOT TAKING A LOT OF RISK HERE. THE WAY I DESCRIBE IT IS YOU HAVE TWO TYPE OF NEWS IN THIS MARKET. YOU HAVE THE BULLISH NEWS, WHEN SOMETHING HAPPEN IN A SMALL COUNTRY WHERE YOU LOSE A LITTLE OR THE BULLISH NEWS WHERE SOMETHING BIG HAPPEN LIKE KNEW JEER YEAH. YOU DON'T HAVE RISK ON THE DOWNSIDE AND THAT SHIFT OF THE SIDE TO LITTLE DOWNSIDE IS WHAT'S ATTRACTING THE SPECULATORS TO THE MARKET.
00:56:10	Walden, Greg	AND BY THAT -- I'LL WAIT TILL THE -- SEE? YOU WON THE PRIZE FOR THE BEST ANSWER. THERE WILL BE SIX OF THEM. WE'RE ADJOURNING THE HOUSE RIGHT NOW, I THINK.
00:56:28	Walden, Greg	SO BY THAT YOU ARE SAYING THAT THERE'S LITTLE RISK THAT WE'RE GOING TO ADD SIGNIFICANTLY TO SUPPLY WHICH IS WHY THEN THE SPECULATORS CONTINUE TO BET LONG SAYING I DON'T SEE THE PRICE COMING
00:56:40	Diwan, Roger	CORRECT. AND WHAT CAN BRING THE PRICES DOWN IN THIS ENVIRONMENT IS THE DEMAND GOING DOWN AND FOR DEMAND TO GO DOWN AS WE SEE IT NOW IT TAKES PRICES TO INCREASE. THE MORE YOU PUSH PRICES THE MORE YOU INCREASE RISK BUT IT'S DIFFICULT TO IMAGINE A DEMAND COLLAPSE IF YOU DON'T HAVE AN SCOMMICK COLLAPSE.
00:57:00	Walden, Greg	I'LL TELL YOU IN MY PART OF THE WORLD THERE ARE PEOPLE THINKING WE'RE HAVING THAT COLLAPSE. WHEN YOU LOOK AT THE PRICE OF FERTILIZER, EVERY OTHER INPUT. THEN YOU GO TO THE GROCERY STORE, AND THE PRICE OF STORE IS GOING UP. I'LL TELL YOU, FAMILY BUDGETS ARE IN BAD SHAPE.
00:57:16	Diwan, Roger	BUT IN THE REST OF THE WORLD DEMAND IS STILL GROWING SO WE HAVE DECENT DEMAND GROWTH DESPITE THE PRICES. THE REASON IS SUBSIDIES. IF YOU LOOK AT THE DEMAND GROWTH IN THE WORLD IT'S CONCENTRATED IN TWO AREAS, CHINA, THE MIDDLE EAST AND SOME COUNTRIES WITH LARGE MINING OPERATION BECAUSE YOU HAVE COMMODITY BOOM. SO THE DEMAND IN THESE AREAS IS NOT RESPONSIVE TO PRICES SO THEY CONTINUE TO GROW.
00:57:41	Walden, Greg	BECAUSE DEMAND IN THE U.S. HAS GONE DOWN, HASN'T IT? THE STEEPEST CURVE SINCE WORLD WAR TWO. USED TO BE IF THAT HAPPENED WEED EFFECT THE MARKET AND PRICE. RIGHT?
00:57:51	Diwan, Roger	BUT THAT'S BEEN A TREND, IF YOU WANT, OTHER THE LAST SIX YEARS, IF YOU TAKE THE GLOBAL GROWTH AND DEMAND, CUMULATIVE GROULT, OVER 80% HAPPENED IN OCD COUNTRIES, THE DEVELOPED COUNTRIES, HAVE SMALLER IMPACT ON THE DEMAND SIDE BECAUSE OF THE PRICE SIGNALS, BECAUSE OF POLICIES WE PUT IN PRICE PLACE, ET, ETC., WHERE YOU HAVE PRICE SUBS DISDEMAND KEEP GROWING BECAUSE YOU HAVE ECONOMIC GROWTH.
00:58:18	Walden, Greg	LOOKS LIKE YOU HAVE A THREE-PART PROBLEM. ONE IS THE WEAK DOLLAR, WHICH IS RELATED TO OUR ECONOMY. TWO IS THE TRANSPARENCY PERHAPS IN THE TRADING ITSELF, AND NEW INVESTORS COMING IN THAT NEVER PLAN TO TAKE POSSESSION OF THE OIL OR GASOLINE, AND THREE IS THIS BELIEVE AND PROBABLY BASED IN REALITY, THAT NOBODY'S TURNING UP THE SPIGOT OR THEY CAN'T. BECAUSE SOME OF THE FIELDS ARE ACTUALLY GOING DOWN, NOT UP. AND MEANWHILE THE UNITED STATES PUTS 80-85 MERS OF ITS OFFSHORE POTENTIAL OUT OF REACH BY FEDERAL LAW AND 60, 75% OF THE ONSHORE ISN'T ACCESSIBLE BY FEDERAL LAW. AND THERE'S NO EVIDENCE WE'RE GOING TO CHANGE THOSE LAWS. SO FROM A U.S. PERSPECTIVE, UNLESS WE CHANGE THE LAW, CHI THINK WE SHOULD, AND AT LEAST SEND THE SIGNAL THAT WE ARE SERIOUS ABOUT BECOMING MORE ENERGY INDEPENDENT WE'RE GOING TO CONTINUE TO SEE THESE HIGH PRICES?
00:59:19	Diwan, Roger	CORRECT. BUT THE WAY WE LOOK AT IT IS TRY TO GLOOK LOOK AT IT GLOBALLY. IT'S DIFFICULT TO IMAGINE THOUSAND WORLD IS GOING TO PRODUCE 15 BILLION MORE THAN WHAT WE'RE PRODUCING NOW AND HOW THAT WORLD CAN CONSUME IT PER DAY?
00:59:35	Walden, Greg	ONE FINAL QUESTION. YOU SAID EARLIER, I BELIEVE, I WAS -- I HAD TO STEP OUT A MINUTE. BUT IN TERMS OF PRICE SIGNAL FOR THE FUTURE, SOMETHING UNDER $100. RIGHT?
00:59:46	Diwan, Roger	CORRECT.
00:59:48	Walden, Greg	HOW FAR UNDER $100?
00:59:52	Diwan, Roger	AGAIN, CHICKEN OR THE EGG. TO PRODUCE ENERGY REQUIRES A LOT OF ENERGY. THE HIGHER THE PRICE THE HIGHER THE MARGINAL COST. WE ARE SEEING RIGHT NOW SOME INVESTMENT WHERE THE COMPANY ASSUMES PRICES OVER $80. IF PRICES SHOOT BELOW THAT OR BELOW, AT $60, ALL THE MARGINAL PROJECT, ABOVE $60 WILL IMMEDIATELY STOP AND THAT WILL AFFECT THE SUPPLY.
01:00:17	Walden, Greg	ALL RIGHT. MY TIME EXPIRED. MR. CHAIRMAN, THANK YOU.
01:00:25	Stupak, Bart	MR. ROSS FOR QUESTIONS, PLEASE?
01:00:34	Ross, Michael "Mike" A.	MR. CHAIRMAN, THANK YOU FOR INCLUDING ME, ALLOWING ME TO BE A PART OF THIS SUBCOMMITTEE FOR THE PURPOSES OF THIS DISCUSSION TODAY BECAUSE THIS IS IN MY OPINION VERY CRITICAL ISSUE FACING OUR COUNTRY AND QUITE FRANKLY THE WORLD. I THINK WHAT WE'RE SEEING HAPPEN IN THE ENERGY MARKET HAS A LOT TO DO WITH THIS ECONOMIC RECESSION THAT WE'RE IN AND HOW FAST WE GET OUT OF IT. MY QUESTION FOR ANY OF YOU WHO IN ANY FORM OR FASHION PARTICIPATE IN EITHER TRADING OR ENCOURAGING OTHERS TO TRADE IN THE FUTURES MARKET, COULD I GET A SHOW OF SNANDS WHICH ONES OF YOU ARE INVOLVED IN THAT? ANYONE? NO ONE WILL ADMIT IT? SO LET ME ASK YOU THIS. DO YOU KNOW PEOPLE WHO TRADE IN THE FUTURES MARKET? EVERYBODY DOES. IN YOUR OPINION, DOESN'T HAVE TO BE SCIENTIFIC, BUT BASED UPON YOUR EXPERTISE, WHAT% OF THOSE WHO PLAY THE MARKET COULD ACTUALLY ACCEPT DELIVERY OF DIESEL FUEL OR GASOLINE IF THEY HAD TO?
01:02:02	Krapels, Edward	IT'S A TINY FRACTION. LESS THAN 1% OF ALL THE TRADES ARE DONE PHYSICAL.
01:02:10	Ross, Michael "Mike" A.	SO ALL THE PEOPLE PLAY IN THE MARKETS ON DIESEL AND GAS AND OIL, YOU'RE TELLING ME LESS THAN 1% OF ALL THOSE DOING IT COULD ACCEPT DELIVERY IF THEY HAD TO.
01:02:22	Krapels, Edward	THAT'S CORRECT.
01:02:23	Ross, Michael "Mike" A.	EVERYBODY AGREES WITH THAT?
01:02:25	Masters, Michael	I THINK IT MAY BE A HIGHER NUMBER THAN THAT. BECAUSE MANY PHYSICAL PLAYERS COULD ACCEPT DELIVERY BUT THEY TYPICALLY DON'T. THEY ARE TYPICALLY USING THE FUTURES MARKETS AS A HEDGE.
01:02:37	>>	WHAT WOULD HAPPEN TO OIL AND GAS PRICES IF ONLY THOSE WHO COULD ACCEPT DELIVERY WERE ABLE TO --
01:02:45	Diwan, Roger	WELL, YOU CAN GO BACK TO A SMALL MARKET BUT IF YOU HAVE A SMALL MARKET IT'S MUCH EASIER TO MANIPULATE SO LIQUIDITY IS IMPORTANT. IF YOU ONLY A A FEW, THE BIG CONSUMER COULD HAVE ENOUGH MUSCLE TO HAVE A BIG IMPACT SO REDUCING THE MARKET DRAMATICALLY IS I'M NOT SURE, A WAY TO AVOID MANIPULATION.
01:03:09	Ross, Michael "Mike" A.	THAT, MR. CHAIRMAN, I WOULD YIELD --
01:03:13	Stupak, Bart	IF I MAY?
01:03:14	Ross, Michael "Mike" A.	I YIELD TO THE CHAIRMAN THAT'S THE ONLY QUESTION I HAD FOR THE PANEL.
01:03:19	Stupak, Bart	LET ME ASK THIS QUESTION, IT'S ALONG THE LINES OF THAT. OTHER AREAS THAT SHOULD BE OPEN TO EXPLORATION BUT THERE'S A PROPOSAL THAT THERE ARE 40 MILLION ACRES ON THE INTER-- OUTER CONTINENTAL SHE FEEL THAT'S NOT BEING USED TIED UP IN THE LEASES. SHOULD THE LEASES LIKE WE DO ON TIMBER SALES, YOU CAN ONLY HOLD IT FOR FIVE YEARS, IF YOU DON'T USE IT YOU LOSE IT. WE ARE TALKING ABOUT DRILLING ELSEWHERE BUT WE HAVE 40 MILLION ACRES TIED UP NO ONE IS DRILLING ON. SHOULD WE USE IT OR LOSE IT TYPE PROPOSAL?
01:04:00	Gheit, Fadel	THIS DEFINITELY A GOOD THING TO KEEP OIL COMPANIES' FEET TO THE FIRE. IF WE DON'T DEVELOP THE TECHNOLOGY, IF THEY AREN'TLE WILLING TO INVEST, I HAVE NO PROBLEM RENEWING EVERY FIVE YEARS. YOU JUST DON'T HOLD IT FOR FUTURE TECHNOLOGY 20-30 YEARS FROM NOW. HORDING LAND IS JUST AS BAD AS ANYTHING ELSE.
01:04:24	Diwan, Roger	AGAIN, I THINK THIS IS SIMPLISTIC. IF YOU LOOK AT WHAT'S HAPPENING IN THE U.S. THE SERVICE SECTOR IS OVERHEATED. WE DON'T HAVE ENOUGH PEOPLE. WE DON'T HAVE ENOUGH COMPANIES. WE DON'T HAVE DRILL SHIPS, ENOUGH OF EVERYTHING. WE WENT THROUGH 20 YEARS OF UNDERINVESTMENT. NOW WE'RE BACK TO THE SUPERCYCLE. THE INDUSTRY IS WORKING HARD. THE NOTION THEY ARE SITTING ON THE LAND AND HORDING IS -- I MEAN, WHEN YOU WORK WITH OIL COMPANIES THEY ARE LOOKING WHERE TO PUT MORE MONEY IN THE GROUND TO PRODUCE MORE OIL AT THESE PRICES. IF THEY ARE NOT WILLING THEY SHOULD BE IN A DIFFERENT BUSINESS. I DON'T KNOW. A LOT OF OIL COMPANIES AREN'T WILLING TO INVEST AT THESE PRICES. THE QUESTION IS ARE THE LAND THEY ARE SITTING ON PROPITIOUS FOR PRODUCTION? DO WE HAVE THE TECHNOLOGY TO LOOK? DO WE HAVE THE TECHNOLOGY TO LOOK? DO WE HAVE THE TECHNOLOGY TO HOOK THESE THINGS SNUP
01:05:14	Stupak, Bart	WHY SHOULD THE FEDERAL GOVERNMENT PUT UP MORE LAND IF YOU AREN'T DRILLING ON THE LAND YOU HAVE LEASED?
01:05:20	Diwan, Roger	THE QUESTION IS ARE THEY GOOD LAND OR NOT, COW PASTURE? WHEN YOU LOOK AT AN OIL COMPANY EVERY YEAR THEY HAVE A BUDGET TO SPEND AND THEY TRY TO PUSH THE BUDGET AS MUCH AS POSSIBLE. THEY TAKE THE BEST AND DRILL THOSE FIRST AND THE NEXT YEAR THEY DO THE SAME, SAME, SAME.
01:05:37	Stupak, Bart	OBVIOUSLY THEY THOUGHT THERE WAS SOME VALUE OR THEY NEVER WOULD HAVE BEGGED FOR THE LEASE
01:05:41	Diwan, Roger	CORRECT. IF BUT IF YOU LOOK AT THE ECONOMICS OF EXPLORING AND PRODUCING OIL, THE CHEAPEST PART IS THE LAND SO IT'S EASY TO GET A LOT OF LAND THAN TO GET A LOT OF DRILL CHIPS. .
01:06:48	Burgess, Michael	I COULD ON YOUR PLAN THAT YOU HAVE OUTLINED FOR US THIS MORNING AND THANK YOU FOR DOING THAT, STEP #FOR YOU TALK ABOUT INVESTIGATING PHYSICAL COURTING OF COMMODITIES BY INVESTORS, DO YOU HAVE CURRENT EVIDENCE OF THIS OCCURRING?
01:07:02	Masters, Michael	YES.
01:07:04	Burgess, Michael	HAVE YOU MADE IT AVAILABLE TO THE COMMITTEE?
01:07:10	Masters, Michael	I THINK WE HAVE, YES.
01:07:12	Burgess, Michael	I WOULD ASK THAT THAT BE SHARED WITH US. FOR SOME REASON I DO NOT HAVE THAT.
01:07:20	Masters, Michael	IT WAS NOT IN THE FOOTNOTES. --THE DOCUMENTS HAVE BEEN SUBMITTED TO THE CHAIRMAN.
01:07:34	Burgess, Michael	ON THEIR PRINT SIDE IN JUNE 16 AND JUNE 16 ARTICLE THE TALK ABOUT 15 SUPERTANKERS STATIONED IN THE PERSIAN GULF CAPABLE OF STORING MORE THAN 30 BILLION BARRELS OF CRUDE ACCORDING TO SHIP TRACKING DATA COMPILED BY BLOOMBERG. YOU HAVE ANY INFORMATION ABOUT THAT?
01:07:55	Diwan, Roger	YOU DO. YOU HAVE 15 OR MORE TANKER'S FULL OF IRANIAN CRUDE. IT IS A VERY HEAVY CRUDE AND DIFFICULT TO SELL AND THERE IS NO MARKET FOR IT. THE IRANIANS HAVE TWO OPTIONS, DISTORT OR TO WAIT FOR THE DEMAND ON -- TO EMERGE. WHEN IT OUTLINED THAT SOME SEGMENT OF THE MARKET, THE ONE -- THE ONE FOR HEAVY CRUDE IS SLOPPY AND NOT A LOT OF DEMAND FOR IT.
01:08:26	Diwan, Roger	ONE OF THE THINGS I HAVE NOT UNDERSTOOD IS WHY DIESEL SHOT UP SO MUCH FASTER THAN REFINED GAS AND WITH THIS TYPE OF CRUDE NOT BE SUITABLE FOR RECOVERING DIESEL FUEL?
01:08:39	Diwan, Roger	IF YOU HAVE THE REFINERY TOOLS TO DO IT, SPRING IN GENERAL REFINERIES GO UNDER MAINTENANCE. THERE IS REASON TO VOTE -- DIESEL IS DOING WELL. IF THESE ZERO IS A GLOBAL COMMODITY AND YOU HAVE HIGH GROWTH RATES IN CHINA AND THE MIDDLE EAST IT IS MOSTLY FOR DIESEL. DIESEL IS A KOTTER -- BROADER COMMODITY THAN DIESEL IN THAT SENSE. THE STRENGTH IN DEMAND IS IN CHINA AND THE MIDDLE EAST IS
01:09:10	Burgess, Michael	THANK YOU. STAYING ON THE FOUR. PLANET WE COULD FOR A MOMENT, -- FOUR. PLAN. IF WE COULD FOR A MOMENT. WE'RE TALKING ABOUT THE AMOUNT THAT MUST BE PUT UP FOR A MARGIN AND THE ABILITY TO TAKE POSSESSION OF A COMMODITY WORTH A CONTRACT IS.
01:09:38	Krapels, Edward	AM IN FAVOR OF POSITION ELEMENTS?
01:09:39	Krapels, Edward	YES.
01:09:43	Burgess, Michael	IS THAT OF ALL THE PROPOSALS THAT WERE THERE BEFORE US, IS THAT THE ONE THAT IS LIKELY TO HAVE MOST IMMEDIATE PROFOUND IMPACT ON THE PRICE?
01:09:55	Burgess, Michael	I KNOW MR. MASTERS THINKS SO.
01:10:00	Krapels, Edward	I THINK IT WOULD. OF A FOUR DIFFERENT RECOMMENDATIONS THAT ARE PRACTICAL AND LIKELY TO BE ACCEPTABLE. I THINK THAT ONE IS ONE THAT WOULD GET THE BIGGEST BANG FOR THE BUCK.
01:10:17	Burgess, Michael	IT DOES NOT SEEM TO ME TO BE THAT DIFFICULT BUT I AM NOT A GREAT STUDENT OF PETROLEUM ENGINEERING. WOULD THIS BE DIFFICULT TO ENACT AND CREATE?
01:10:29	Krapels, Edward	FROM A LEGISLATIVE OR REGULATORY STANDPOINT?
01:10:32	Burgess, Michael	FOR A REGULATORY STANDPOINT.
01:10:33	Burgess, Michael	I WOULD NOT EITHER. IF STEP 1 BY ITSELF WERE TAKEN, WITHOUT ALL THE OTHER STEPS TAKEN, WITH THAT MOVE US CLOSER TO THE MARGINAL PRICE THAT WE HAVE HEARD TALK ABOUT THIS MORNING ON THE PANEL?
01:10:48	Krapels, Edward	IT WOULD HELP. THE DEVIL IS IN THE DETAILS, HOW QUICKLY WE WOULD ESTABLISH THOSE LIMITS WOULD BE PHASED IN OR AN IMMEDIATE APPROACH?
01:10:58	Burgess, Michael	THAT IS ONE OF THE THINGS IT WANTED TO ASK ABOUT, WHAT IS THE DANGER IN ENACTING THIS TOO QUICKLY IF WE HAVE ALREADY SEEN SOME OF THE DIFFICULTIES WE HAVE HAD IN THE FINANCIAL SECTOR OF OUR ECONOMY. IS THERE AN UNFORESEEN CONSEQUENCE OF MOVING TOO QUICKLY IN THIS REGARD OR SHOULD WE WORK TO GET THIS STEP ENACTED AND BRING DOWN THE COST OF PRODUCTION?
01:11:25	Krapels, Edward	I THINK YOU WOULD WANT TO TAKE YOUR TIME AND GIVE PEOPLE SOME TIME TO UNWIND THEIR POSITIONS. AND I THINK IF YOU DO NOT GIVE THEM TIME, THERE COULD BE SUBSTANTIAL DAMAGE.
01:11:38	Burgess, Michael	WHAT IS THE TIME LINE LIKELY TO LOOK LIKE?
01:11:41	Krapels, Edward	I WOULD GIVE MARKET PARTICIPANTS ONE YEAR IN WHICH THESE SORTS OF LIMITS WOULD BECOME IN FORCE.
01:11:52	Burgess, Michael	AND TWO -- ARE THE OTHER PANELISTS IN AGREEMENT?
01:11:56	Masters, Michael	THAT IS TOO LONG GREAT I DO NOT THINK THAT IS NECESSARY.
01:11:58	Burgess, Michael	A YEAR IS NOT NECESSARY?
01:12:03	Masters, Michael	A YEAR -- ONE OF THE THINGS THAT IS IMPORTANT TO UNDERSTAND IS BECAUSE COMMODITIES ARE ON CORRELATED WITH OTHER ASSET GLASSES AND I DO NOT REJECT -- THEY ARE DIFFERENT FROM OTHER PARTS OF ONE'S PORTFOLIO. IT IS LIKELY THAT PRICES OF COMMODITY FUTURES AND COMMODITY PRICES WOULD COME DOWN RELATIVELY QUICKLY. THE INTERESTING THING IS BECAUSE THE THAT REJECT MAJORITY OF INSTITUTIONAL INVESTORS BONDS ARE STILL IN STOCKS AND BONDS. IT IS ALSO VERY LIKELY THAT THOSE PRICES WOULD GO UP. RELATIVELY QUICKLY. SO THEY WILL LOSE ON THE COMMODITIES POSITION WHICH CONAGRA'S AVERAGES 1% OF THEIR PORTFOLIO. WITH A 50% OR MORE POSITION IN COMMON STOCKS AND FIXED-INCOME, THEY WILL WEIGH OFFSET THAT IN THE BENEFIT THAT THEY GET IN THE REST OF THEIR PORTFOLIOS SO THIS IS A VERY POWERFUL POSITIVE AFFECT ON THEIR PORTFOLIO.
01:13:09	Burgess, Michael	AND THIS WILL THEY WERE INVESTED IN THE FINANCIAL SECTOR. -- UNLESS THEY WERE INVESTED IN THE FINANCIAL SECTOR. I YIELD BACK.
01:13:27	Rogers, Michael "Mike"	CAN YOU GIVE ME SOME COMPARABLE ASSET GLASSES TO OIL? THE WILL OPEN THAT UP TO ANY PANELIST. IS THERE ANYTHING COMPARABLE TO WELL? -- OIL.
01:13:44	Masters, Michael	COMMODITY FUTURES, WE DO NOT CONSIDER THAT AN ASSET CLASS. ONE OF THE ISSUES IS THAT CAPITAL MARKETS INVESTORS HAVE IMPUTED BIASES ON THE COMMODITY FUTURES MARKET. COMMODITY FUTURES MARKETS ARE SMALLER AND THEY HAVE A DIFFERENT SET OF REGULATIONS THAT CAPITAL MARKETS AND BECAUSE OF THAT, THEY SHOULD BE TREATED ON A MUCH DIFFERENT BASIS.
01:14:11	Krapels, Edward	I THINK WITHIN THE ENERGY SECTOR, NATURAL GAS LOOKS LIKE OIL IF THAT IS THE DRAFT OF YOUR QUESTION.
01:14:19	Rogers, Michael "Mike"	IT IS REGULATED DIFFERENTLY.
01:14:21	Krapels, Edward	I THINK IT IS REGULATED IN MANY OF THE SAME WAY AS AS CRUDE OIL IS AND IT HAS SOME OF THE SAME CHARACTERISTICS IN TERMS OF THE INFLATION OF POTENTIAL SPECULATIVE POSITIONS IN THE NATURAL GAS MARKET.
01:14:37	Rogers, Michael "Mike"	WHEN I HEARD TODAY WAS THAT IT IS NOT JUST SPECULATORS, SPECULATORS ARE A PROBLEM BUT THEY -- WE HAVE A DEMAND AND SUPPLY ISSUE SO SOMETHING COMPREHENSIVE BOTH ON THE DEMAND AND THE SUPPLY SIDE IS PROBABLY THE BEST POLICY AS WE MOVE FORWARD IF WE WANTED TO IMPACT PRICES AND OUR ABILITY TO BE IMMUNE FROM GOVERNMENTAL CHANGES
01:14:58	Rogers, Michael "Mike"	HYDROGEN, LITHIUM, ALL THE THINGS WE TALK ABOUT NOW INCLUDING IMPACTING THIS APPLY, THAT WOULD BE ON THE DEMAND SIDE BUT IMPACTING SUPPLY WITH PRODUCTION WOULD BE HELPFUL, WOULD IT?
01:15:19	Krapels, Edward	IF I CAN TAKE TWO MINUTES ON THAT. I COMPLETELY AGREE AND IF YOU'RE A MEMBER FOR BUSHIES GRAF WON THE PRICE WENT UP IN THE SHOP IN THE LAST $56 OF PRICE ESCALATION. AS A COMMON SENSE MATTER, IT IS AN ISSUE OF DEGREE OF PRICE PRESSURE. THE $70 AND $80 A BARREL, WE WILL DEVELOP A LOT OF ALTERNATIVE TECHNOLOGIES IN THE ELECTRIC SPACE. WE WILL DEVELOP A LOT OF CONSERVATION INITIATIVES IN THE TRANSPORTATION SECTOR. IT IS THE 82 $130 THAT IS -- SEEMS AS A MATTER OF DEGREE UNREASONABLE AND NOT VERY USEFUL. IT IS NOT BEEN PRICED INTO THE INVESTMENT DECISIONS OF MOST COMPANIES THAT WE NOW.
01:16:06	Gheit, Fadel	I WANT TO MAKE A COMMENT. [UNINTELLIGIBLE] MARKETS ARE NOT FREE MARKETS. THE REASON THAT PRICES DO NOT STOP -- REPORT -- RESPOND TO SUPPLY AND DEMAND [UNINTELLIGIBLE] WHEN RUSSIA SCHULTZE OF ITS RESOURCES, THE REST OF WORLD SAID -- ARTIFICIAL SUPPLY CONSTRAINTS AND THE DEMAND SIDE [INAUDIBLE] YOU HAVE OPEC AND CHINA AND OTHER COUNTRIES SUBSIDIZE OIL PRICES SO CONSUMERS DO NOT FEEL THE PRESSURE. GOVERNMENT POLICIES THAT HAVE TREMENDOUS IMPACT ON WHAT WILL AND GAS FUNDAMENTALS DO NOT RESPOND TO A MARKET RUMOR.
01:17:02	Rogers, Michael "Mike"	YOU HAVE A BUNCH OF PEOPLE PULLING OUT OF EQUITIES AND A MARKET THAT IS SHOWN BY GOVERNMENT POLICY WOULD NOT INCREASE SUPPLY, AT LEAST MAKE AN ATTRACTIVE MARKET FOR THESE FOLKS TO JUMP INTO RIGHTLY OR WRONGLY AND HELP CREATE THE PROBLEM.
01:17:19	Gheit, Fadel	FOR US TO THINK THAT IT IS ONE SILVER BULLET THAT WILL TAKE CARE OF THIS PROBLEM WE'RE KIDDING OURSELVES.
01:17:29	Rogers, Michael "Mike"	THIS HAS TO BE A WHOLE SERIES OF THINGS, IT IS A BULLET. IT HAS TO BE THE COMPLETE COURSE.
01:17:39	Rogers, Michael "Mike"	INCLUDING DOMESTIC SUPPLY.
01:17:41	Gheit, Fadel	EVERYTHING SHOULD BE ON THE TABLE.
01:17:42	Rogers, Michael "Mike"	I AGREE WITH YOU. I WANT TO MAKE SURE WE DO NOT HAVE UNINTENDED CONSEQUENCES. THERE IS A LOT OF PUBLIC PENSIONS INVOLVED. I KNOW YOU SAID THAT YOU COULD DO IT IN LESS THAN A YEAR. YOU ARE IN THE VIRGIN ISLANDS, I ASSUME YOU MADE THAT DECISION BASED ON TAX ISSUES. THAT IS AN UNINTENDED CAEN -- CONSEQUENCE. WE WOULD LIKE TO BE HERE. IRAN POLICY HAVE THAT IMPACT 3 WHAT HAPPENS TO THE $260 BILLION THAT YOU SAY SCREWS UP THE DISCOVERY POINT AND HOW YOU GET FROM TO 60 TO 4 BILLION WITHOUT SOME OF THESE PUBLIC PENSION PLANS GETTING TURNED UPSIDE-DOWN WITHIN A YEAR? THAT CONCERNS ME.
01:18:25	Masters, Michael	THE WAY THAT HAPPENS IS THAT AGAIN, AS I DESCRIBED, THESE ALLOCATIONS ARE LESS THAN 1% OF THE PORTFOLIO. YOU ARE TALKING ABOUT A PORTFOLIO ACROSS THE BOARD OF THESE INSTITUTIONAL INVESTORS THAT IS ROUGHLY 29 TRILLION DOLLARS. TO UNDER $60 BILLION WHILE IT SOUNDS LIKE A LOT OF MONEY AND IS, IT IS A LOT LESS THAN 29 TRILLION. THE WITH THE MATH WORKS IS WHAT SAY THAT YOU HAVE 15 TRILLION DOLLARS AND THAT $260 BILLION GOES TO ZERO. LET'S SAY THE PRICE OF COMMODITIES GOES TO 03 THAT 15 TRILLION DOLLARS WILL GO UP AT LEAST 10%. YOU ARE UP ONE AND A HALF TRILLION DOLLARS ON YOUR PORTFOLIO AND YOU HAVE LOST 260 BILLION UNDER COMMODITIES SIDE AND YOU ARE AHEAD BY 1.2 TRILLION DOLLARS. NOT A BAD TRIP.
01:19:17	Rogers, Michael "Mike"	THAT DOES NOT HAVE INDUSTRY SPECIFIC CONSEQUENCE. I LOOK AT THE AIRLINE INDUSTRY AS AN EXAMPLE. $260 BILLION IS A SMALL FRACTION OF THE 29 TRILLION DOLLARS. IT IS HAVING A 1000% IMPACT ON THE ABILITY TO COMPETE AND SURVIVE AND IS NOT JUST THEM, IT IS TRUCKING ORGANIZATIONS, SHORT LINE HAULERS, AND SO THAT $260 BILLION MAY BE A SHORT PART OF THE INVESTMENT SCHEME BUT IT IS IMPACTING WHAT ADVICE AND COUNSEL YOU'RE GIVING PEOPLE IN THE EQUITY MARKET. IS IT?
01:19:50	Masters, Michael	HAVING COMMODITY PRICES COME DOWN IN THE AIRLINE PEOPLE CAN ERIC -- AND THE AIRLINE PEOPLE CAN SPEAK TO THIS, IT WOULD BE GREAT BENEFIT TO THE TRUCKERS AND AIRLINES AND CONSUMERS -- YOU'D HAVE A MUCH GREATER EFFECT TO MAKE THE POINT, THE LIKELY REASON THAT THE EQUITY MARKET WOULD GO UP IN VALUE IS BECAUSE INVESTORS WOULD UNDERSTAND THAT THIS IS A GOOD THING FOR THE ECONOMY. THIS WILL HELP THINGS MOVE FORWARD.
01:20:26	>>	YOUR TESTIMONY HAS BEEN MOST HELPFUL. I BELIEVE YOU SAID WE COULD END EXCESS SPECULATION IN 30 DAYS IF WE HAD THE WILL. TO DO SO. I WOULD LIKE TO KNOW WHAT IS IT THAT WE SHOULD DO TO ACCOMPLISH THAT PURPOSE?
01:20:49	Gheit, Fadel	THE FIRST THING WE SHOULD DO TO RAISE THE MARGINS REQUIRED IS 50%. THAT WOULD SLOW THE VOLUMES SIGNIFICANTLY. THAT WILL ALSO CURTAIL THE TRADE IN VOLUME. AND FORCE THE FINANCIAL PLAYERS TO FULLY DISCLOSE THEIR POSITION. THAT WILL ALSO HAVE AN IMPACT. IT IS GOING TO BE STEP-BY-STEP BUT IF WE PUT LEGISLATION AND WE GIVE PEOPLE 30 DAYS TO GET OUT OF THEIR POSITION, THAT IS PLENTY OF TIME AFTER ALL THEY ARE BIG BOYS AND MADE A LOT OF MONEY, AND AS OTHER PEOPLE IN THE PANEL SAID, THEY HAVE THE REST OF THEIR HOLDINGS. IT WILL BE GREATER THAN THE DOWNSIDE FROM THEIR OIL HOLDINGS. WE DEFINITELY CAN GET THIS THING DONE QUICKLY.
01:21:49	>>	I BELIEVE YOU HAVE SAID THAT TO WE SHOULD ATTACK MARGINS. IS THAT RIGHT?
01:21:55	Gheit, Fadel	THE MARGIN REQUIREMENT.
01:21:59	>>	THAT RUNS 5% NOW.
01:22:04	>>	THERE ARE LOOPHOLES THAT PERMIT IT TO BE DONE AT LOWER OR NEW MARGINS WHATSOEVER. WHAT SHOULD WE RAISE THAT MARGIN TO AND HOW SHOULD WE GO ABOUT DOING IT?
01:22:25	Gheit, Fadel	THE MARGIN ON STOCKS IS 50%. COMMERCIAL PLAYERS LIKE AIRLINES AND THE OIL INDUSTRY SHOULD KEEP THE LOW MARGIN REQUIREMENT WHICH IS 5% TO 7%.
01:22:34	>>	THOSE ARE PEOPLE WHO ARE
01:22:36	Gheit, Fadel	CORRECT.
01:22:39	Gheit, Fadel	YOU NEED THAT TO PROTECT AGAIN THIS DOCK COMMODITY RISK BUT THOSE WHO ARE COMING HERE JUST TO HOLD AN ELECTRONIC BARREL IN THE HOPE OF GETTING THE PRICE HIGHER, THEY HAVE ABSOLUTELY NO VALUE. THEY DO NOT CREATE AN ECONOMIC VALUE IN THE PROCESS. THEY MAKE MONEY THEMSELVES. OBVIOUSLY, THAT IS AT THE DETRIMENT OF THE REST OF THE ECONOMY. IT IS THE VIEW MAKING A LOT OF MONEY BUT A LOT OF PEOPLE LOSE A LOT OF MONEY.
01:23:10	>>	THAT IS TRUE WITH COMMODITIES MARKETS ANYWAY. THAT IS THE PLACE WHERE THE LITTLE GUY GETS IT AND THE BIG GUY DOES FINE. WHAT SHOULD THE MARGIN GO TO? YOU ARE INDICATING 50%.
01:23:25	Gheit, Fadel	50.
01:23:30	>>	IF YOU COULD ADDRESS THEM AGAIN. YOU SAID THERE WERE OTHER THINGS. IS THE MARGIN REQUIREMENT REQUIREMENTT --
01:23:50	Gheit, Fadel	WE SHOULD HOLD THE PLAYERS TO A PERCENTAGE OF THE PHYSICAL MARKET. WE SHOULD ESTABLISH A LIMIT FOR THE FINANCIALS, NO MORE THAN 10% OF THE PHYSICAL MARKET. YOU DO NOT WANT THE FINANCIAL MARKET TO BE BIGGER THAN THE PHYSICAL MARKET.
01:24:11	>>	I HAVE A COUPLE OF OTHER CONCERNS WHICH I FIND DIFFICULT. FIRST, THE FOREIGN [UNINTELLIGIBLE] OF TRADE LIPPOLD. IT HAS BEEN CALLED THE LONDON THE POLL. THIS HAS ALLOWED FOREIGN BOARDS OF TRADE TO TRADE FUTURES IN THE U.S. BUT FOR REGISTERING AS A DESIGNATED CONTRACT MARKET. THEY GET THIS LOOPHOLE FROM THE CFTC THROUGH A NO ACTION LETTER. ONCE EXEMPTED, THE EXCHANGE IS NOT SUBJECT TO THE REQUIREMENTS IMPOSED ON U.S. EXCHANGES BY CFTC.; THERE IS A COUPLE OF OTHERS. THE ENRON LOOPHOLE. AS PART OF THE COMMODITIES FUTURE ACT, THE ENRON LOOPHOLE CREATED [UNINTELLIGIBLE] CALLED EXEMPT COMMERCIAL MARKETS. ICE HAS EXPLOITED THIS LOOPHOLE AND SAW ITS MARKET RAPIDLY. THIS IS ALSO KNOWN AS THE GOLDMAN -- THE SWAPS LOOPHOLE, THE GOLDMAN SACKS APPROPRIATE COMMERCIAL OPERATIONS LIKE OIL PRODUCERS OR FARMERS ARE EXEMPTED FROM SPECULATION POSITION LIMITS IF THEY HAVE A PRICE RISK TIED TO THE PURCHASE OR SALE OF A PHYSICAL COMMODITY. THESE SPECULATIVE POSITION LIMITS ARE THERE TO PREVENT EXCESSIVE SPECULATION. IN 1991, CFTC BEGAN TO CLASSIFY SWAPS DEALERS ON WALL STREET AS HEDGERS. I AM CURIOUS HOW THEY DID THAT. BASED ON THE ARGUMENT THAT THEY HAVE A PRICE WAR IS TIED TO A FINANCIAL INVESTMENTS IN COMMODITY INDEX INVESTMENTS. THERE ARE 15 INVESTMENT BANKS WITH CFTC EXEMPTIONS. WOULD YOU ADDRESS THESE?
01:26:20	Gheit, Fadel	WHAT I AM SUGGESTING IS WE CANNOT CLOSE THE DOOR AND LEAVE THE WINDOWS OPEN BECAUSE THESE PEOPLE HAVE A WAY TO CONDUCT THEIR TRADING OUTSIDE THE U.S.. UNLESS OR UNTIL WE HAVE A LEVEL PLAYING FIELD, IT IS NOT GOING TO BEAR FRUIT. WE HAVE TO APPLY THE SAME RULES THAT WE HAVE IN THE U.S. TO THE ICE OR OTHER MARKETS. IF THE CLAMPDOWN ON TRADERS ON ICE, THEY WILL GO OTHER PLACES BUT MY RECOMMENDATION IS TO REQUIRE ANY COMPANY DOING BUSINESS IN THE U.S. TO ONLY DO THEIR HEDGING ON EXCHANGES THAT ARE SANCTIONED BY U.S. LAWS. OTHERWISE IT IS MONEY LAUNDERING
01:27:07	>>	THINKING. OTHER MEMBERS -- THANK YOU. OTHER MEMBERS, WOULD YOU GIVE YOUR COMMENTS ON THE QUESTIONS I HAVE RAISED? YOU AGREE OR DISAGREE OR HAVE OTHER COMMENTS?
01:27:26	Diwan, Roger	THE PROBLEM AS WE DO NOT HAVE THE ROOM TO MAKE CLEAR JUDGMENT THREE WE DO NOT KNOW HOW MANY OF THESE INDEX FUNDS ARE USING THE LOCAL AND WE DO NOT KNOW OF THEIR ABOVE THE LIMITS. IF YOU PUT THE LIMITS, OF THERE ARE A FEW LARGE INDEXES WITH VERY BIG POSITIONS AND IF WE CLOSE THE LOOPHOLE ON THE LIMITS, THEY WILL COME BELOW THAT, OR IF THERE IS A LOT OF PENSION FUNDS WITH SMALL POSITIONS, IMPOSING A LIMIT DOES NOT DO MUCH. WE DO NOT KNOW THAT. WE DO NOT HAVE THE DATA. IT WILL BE IMPORTANT TO CLOSE LOOPHOLES BECAUSE THEN YOU HAVE A LEVEL PLAYING FIELD. AND WE WILL SEE WHAT HAPPENS. YOU GO INCREMENTALLY AND CHANGE THE MARGIN CALLS AND CLOSE THE LOOPHOLES AND HERE WE ARE.
01:28:14	>>	I WANT TO COMMEND YOU FOR YOUR COMMENTS AND HELP TO THE COMMITTEE. WHAT ARE YOUR THOUGHTS ON THE MATTER WE ARE DISCUSSING?
01:28:27	Masters, Michael	IN GENERAL I AGREE WITH THE SUGGESTIONS. THE MARGIN REQUIREMENT IS -- DOES NOT WORK AS WELL AS POSITION LIMITS DO.
01:28:38	>>	YOU SAY IT DOES NOT?
01:28:39	Masters, Michael	I DO NOT THINK IT DOES. I THINK IT IS -- CERTAINLY AS AS
01:28:49	>>	COULD BE HELPFUL?
01:28:50	Masters, Michael	I THINK IT COULD BE.
01:28:54	>>	I AM TRYING TO FIGURE OUT WHAT PACKAGE WE'RE GOING TO GET SO YOU AGREE THAT THE MARGIN REQUIREMENT WOULD BE HELPFUL BUT NOT AS HELPFUL AS I WOULD LIKE TO BE.
01:29:05	>>	WHAT OTHERS WITH REGARD TO THE THREE LOOPHOLES WE HAVE DISCUSSED?
01:29:10	Masters, Michael	WITH THE POSITION LIMITS, ONE OF THE INTERESTING THINGS ABOUT CRUDE-OIL RIGHT NOW IS THERE ARE NOT ANY POSITION LIMITS. YOU HAVE GOT TO WHAT IS CALLED ACCOUNTABILITY LIMITS. YOU NEED SOME POSITION LIMITS. THE REASON WE SUGGEST COMING UP WITH A COMMITTEE OF EXCLUSIVELY PHYSICAL COMMODITIES HEDGERS AND PRODUCERS AND CONSUMERS IS WE FEEL LIKE THAT GROUP WILL NOT DO ANYTHING TO JEOPARDIZE THEIR LIQUIDITY. THEY WILL CHOOSE APPROPRIATE POSITION LIMITS. THE EXCHANGE IS FOR-PROFIT ENERGY -- ENTITIES. THEY BOTH BENEFIT FROM LARGER AMOUNTS OF SPECULATION. THOSE ENTITIES SHOULD BE EXCLUDED FROM THIS PANEL. THE PANEL SHOULD BE EXCLUSIVELY PHYSICAL COMMODITY PRODUCERS AND CONSUMERS AND IF YOU DO THAT YOU WILL DO A LOT IN TERMS OF MAKING POSITION LIMITS WORKED TO SEE WHAT ROGERTT WAS SAYING. AND FOR MANY OF THE SMALL SPECULATORS, YOU WILL GO BACK AND SAY -- WITH THE LARGE SPECULATORS ON ALL LEVEL PLAYING FIELD. THE SMALL SPECULATORS HAVE TO DO WITH POSITION LIMITS. THIS IS ON A COMMODITY BY COMMODITY BASIS AND THEN WITH REGARDS TO OUR OTHER SOLUTIONS, LOOKING AT AN OVERALL LEVEL OF SPECULATION WHICH COULD BE DICTATED BY THAT SAME PANEL, WOULD ALSO ALLOW MARKETS TO FUNCTION FOR HEDGERS BUT NOT BE EXCESSIVELY SPECULATIVE. MY SOLUTION IS THAT IS THE WAY OF DOING THINGS RELATIVELY QUICKLY THAT COULD BE PHASED IN OVER SOME SHORT OF TIME BUT CLEARLY THAT WOULD HAVE THE EFFECT OF REDUCING INDEX SPECULATION WHICH WE THINK IS DISTORTING THE PRICES.
01:31:12	>>	THANK YOU.
01:31:18	>>	HOPE YOU DO NOT FEEL I HAVE BEEN DISCOURTEOUS TO YOU.
01:31:23	Krapels, Edward	I GENERALLY CONCUR WITH THE OBSERVATIONS THAT I FELT -- FELLOW PANELISTS HAVE MADE. THERE IS A LOTI WORRY ABOUT THAT AND I DO NOT THINK YOU CAN MAKE THESE CHANGES AS QUICKLY AS MR. MASTERS SUGGESTS. HE WANTS TO -- YOU ARE DEALING WITH PUBLIC PENSION FUNDS AS THE PRIMARY CULPRITS IN THE STORY. SO YOU WANT TO GIVE THEM TIME TO UNWIND THEIR POSITIONS BUT GENERALLY, HAVING A BIGGER MARGIN REQUIREMENT MAKES SENSE TO ME, POSITION LIMITS AND MORE DISCLOSURE.
01:32:14	>>	YOU THE KEY.
01:32:18	Stupak, Bart	-- THANK YOU.
01:32:29	Stupak, Bart	IF WE PASS COMPREHENSIVE LEGISLATION 63 WHEN MY ABLE TO BURST THE BUBBLE. THERE ARE CONCERNS THAT IT WILL HAVE A DEVASTATING EFFECT ON THE ECONOMY. SOME PEOPLE HAVE EXPRESSED THAT INTEREST. YOU THINK IT WILL SHIFT. BUT IT MOVED TO 5%, WE REALLY DO NOT KNOW HOW BIG IT IS BECAUSE WE DO NOT HAVE INFORMATION. IT GOES TO 5%, IT IS AROUND 5%, WOULD THAT CHANGE YOUR THOUGHT AND IS THERE SOME DEVASTATING EFFECT WE HAVE TO BE CAREFUL OF?
01:33:09	Masters, Michael	WHAT WE ARE TALKING ABOUT WITH SPECULATION THE RIGHT TERMINOLOGY IS MORE LIKE A TEMOR AND IT IS HURTFUL. THE TIME TO ACT IS BEFORE IT GETS ANY WORSE. AND WHEN YOU DISCOVER A TUMOR YOU TAKE IT OUT IMMEDIATELY. AND IF WE WERE TO LET THIS CONTINUE, THERE COULD BE MORE UNFORESEEN CONSEQUENCES ON THE ECONOMY.
01:33:43	Stupak, Bart	DID YOU WANT TO COMMENT ON THAT? YOU DID NOT THINK IT WOULD HAVE MUCH IMPACT.
01:33:56	Gheit, Fadel	THERE ARE WINNERS AND LOSERS. THE LOSERS ARE GOING TO BE THE WINNERS OF THE LAST FOUR OR FIVE YEARS. AND THE WINNERS ARE GOING TO BE THE CONSUMERS THAT ARE PAYING FOR GASOLINE UP TO THEIR NOSE, THE FARMERS. THESE ARE THE PEOPLE THAT ARE HURTING AND HURTING PRETTY BADLY. IF OIL PRICES ARE CUT IN HALF, THAT DOES NOT -- THAT IS NOT THE END OF THE WORLD. IT WOULD MAKE MOST INDUSTRIES, THE AIRLINES WOULD HAVE MORE OPPORTUNITIES, THEIR MANUFACTURERS AND EVERYBODY. SO I THINK THERE ARE ARE TO BE BENEFITS THAT OUTWEIGH THE COSTS. AND FOR THE PENSION FUNDS AND THE PEOPLE WHO INVESTED HEAVILY, AS MR. MASTERS SAID, THAT IS A SMALL PERCENTAGE OF THE 12 PART -- TOTAL PORTFOLIO. THE STOCK MARKET WILL GO BY THOUSANDS OF POINTS AND EVERYBODY WILL BE HAPPY. AT THE END OF THE DAY, I SAY PUTTING AN END TO THE SUSPECTED -- SPECULATIVE BUBBLE, I THINK WE SHOULD HAVE DONE THAT A YEAR AGO. WE SHOULD DO IT AS SOON AS POSSIBLE.
01:35:15	Stupak, Bart	IT IS -- ONE INVESTMENT BANK TOLD THE COMMITTEE THAT THEIR COMMODITY INVESTMENTS WERE HELD BY SOVEREIGN WILL FUNDS YET THE CFTC SAYS THEY KNOW OF ONLY ONE SOVEREIGN WEALTH INVESTMENT IN THE FUTURES MARKET. THERE IS A DISCONNECT HERE WITH THE INFORMATION. DO YOU THINK IT IS IMPORTANT FOR AT CFTC CONGRESS TO HAVE A CLEAR VIEW OF THE ROLE OF SOVEREIGN WEALTH ONCE IN FUTURES MARKETS?
01:35:38	Gheit, Fadel	THIS IS PART OF THE RECOMMENDATION. I SAID DISCLOSURE. THE BEST THING IS FULL DISCLOSURE. THEY HAVE TO BREAK DOWN FOR THE LARGEST HOLDERS WITH THE POSITIONS -- WHAT THEIR POSITIONS ARE AND HOW MUCH MONEY THEY'RE MAKING BEFORE THEY MAKE THIS OUTRAGEOUS FORECAST, WE SHOULD KNOW HOW MUCH THEY ARE GOING TO GAMBLE.
01:36:04	Stupak, Bart	HOW MUCH LIQUIDITY DOES THE COMMODITY MARKET NEED TO PERFORM ITS PRICE DISCOVERY AND HEDGING FUNCTION? HOW MUCH LIQUIDITY IS TOO MUCH? IS THE MARKET DROWNING IN LIQUIDITY WITH 70% OF AN OPEN INTEREST AND OIL IS HELD BY SPECULATORS? I THINK IT WAS CHART NUMBER TWO. WERE YOU SEE THAT 70% OF THAT OPEN INTEREST LIQUIDITY? WHAT IS THE RIGHT PERCENTAGE SHOULD BE?
01:36:37	Gheit, Fadel	THE RIGHT PERCENTAGE SHOULD BE DISCUSSED WITH THE DISCUSSEDHEDGERS. -- DISGUST WITH THE PHYSICAL HEDGERS -- DISCUSSED WITH THE PHYSICAL HEDGERS. PUT THE BUYER AND SELLER BUT DO NOT GET IN THE MIDDLE OF THAT TRANSACTION. THE AIRLINE, THE OIL COMPANIES AND THESE PEOPLE CAN SIT DOWN AND FIGURE HOW MUCH LIQUIDITY WE NEED TO HAVE AN EFFICIENT MARKET. I DO NOT THINK IT IS GOING TO BE DOUBLE OR TRIPLE THE PHYSICAL MARKET. IT IS GOING TO BE LESS THAN 20%.
01:37:23	Stupak, Bart	ANYONE ELSE CARE TO COMMENT?
01:37:27	Diwan, Roger	I REMEMBER I STARTED WORKING WITH THAT A FEW -- ADD A FEW YEARS AGO AND WE HAD THE LIQUID MARKET WITH THE SAME PROBLEMS. I WOULD BE CAREFUL ABOUT SAYING WE DO NOT NEED A FINANCIAL ON THE MARKET. IT WOULD BE TREMENDOUS UNINTENDED CONSEQUENCES. TO THE MARKET. WE NEED IS TO HAVE POSITION LIMITS AND EVERYBODY BUT BY THEN NO MATTER WHAT WINDOW OR DOOR THE COME INTO THE MARKET AND EVERYBODY HAS A PLAYING FIELD AND WE KNOW WHAT IS GOING ON. BANNING CERTAIN TYPES OF PLAYERS OR LIMITING AS A PERCENTAGE OF THE MARKET, I DO NOT THINK IT WOULD MAKE A LOT OF SENSE BECAUSE YOU HAVE --
01:38:05	Stupak, Bart	THE MARKET ALWAYS NEEDS SPECULATORS. WHEN -- $89 WAS THE SPECULATORS BE OR THE RISK PREMIUM. NOW WE'RE AT $65 OR $70.
01:38:21	Diwan, Roger	CORRECT A FEWT. IT DEPENDS ON WHERE YOU STAND.
01:38:28	Diwan, Roger	T IS HEDGING AGAINST THE DECLINING DOLLAR. THEY HOLD HUGE ASSETS IN DOLLARS WHICH ARE DECLINING IN VALUE.
01:38:34	Stupak, Bart	IS IN THE EXCEPTION SUPPOSED TO BE A BONAFIDE EXCEPTION AND NOT SPECULATION?
01:38:45	Diwan, Roger	IF YOU HAVE A PENSION FUND AND THE VALUE OF THE STOCKS YOU'RE OWNING ARE GOING DOWN, YOU ARE NOT GOING TO BE IMPRESSED BY THAT MANAGER OF YOUR PENSION FUND. YOU WANT HIM TO DO SOMETHING ABOUT IT BUT THE ONE THING HE DISCOVERED HOW TO DO IS TO HEDGE PART OF HIS PORTFOLIO ON OTHER COMMODITIES WHICH ARE RISING AS THE DOLLAR DECLINES. GOLD AND OIL ARE TOO. -- TWO. IF YOU REDUCE THE MARKET, YOU HAVE OTHER UNINTENDED CONSEQUENCES. I DO NOT KNOW IF YOU HAVE 71% OF SPECULATORS HERE, THAT MEANS IT IS MORE LIQUID. IT IS PROBABLY LESS BECAUSE THE PLAYERS ARE COMING ONLY ON ONE SIDE OF THE MARKET. WHEN YOU HAVE HERE IS A LACK OF LIQUIDITY. YOU HAVE A LOT OF BUYERS AND NOT A LOT OF SELLERS. HOW DO WE BALANCE THAT AND MAKE THESE PENSION FUNDS BEING WILLING TO PLAY BOTH SIDES OF THE CURVE? I DO NOT THINK WE ARE STRUGGLING THROUGH TOO MUCH LIQUIDITY. WE ARE TRAVELLING THROUGH TOO LITTLE.
01:39:47	Stupak, Bart	DO YOU CARE TO COMMENT?
01:39:53	Masters, Michael	THE ISSUE WITH PENSION FUNDS TRYING TO HEDGE, THE WHOLE ISSUE OF PENSION FUNDS OR CAPITAL MARKETS INVESTORS AND THEY'RE LOOKING AT THE COMMODITY AND TRYING TO LOOK AT THE COUNTY MARKETS AS A PLACE FOR BUYING HOLDING. THE WHOLE CONCEPT IS BUY AND HOLD. LONG TERM. WEIR INVESTORS. DO NOT -- THESE ARE CAPITAL MARKET CONCEPTS. THEY'RE NOT COMMODITY FUTURES CONS OF. -- CONCEPTS. THEY EXPIRE MONTHLY. THEY HAVE PHYSICAL DELIVERY FUNCTIONALITY THAT CAN TAKE DELIVERY. THAT IS WHAT THEY EXPIRE. AND SO PENSION FUNDS DO THIS AS THEY BUY IN THE FUTURES CONTACT AND THEY DO THAT WHEN BIGOTRY TO EXPIRE IN THE EXCHANGE AND FOR ANOTHER CONTRACT. WHAT IS IS IT IS LIKE A LAYAWAY. IN THE COMMODITY FUTURES MARKETS. THEY NEVER ACTUALLY TAKE DELIVERY. THERE IS OTHER WAYS THAT THEY COULD HEDGE INFLATION. THERE'S OTHER WAYS THEY COULD MAKE A BET AGAINST THE DOLLAR. CERTAINLY, IF THEY ARE INVOLVED IN THE COMMODITY FUTURES MARKETS HAVE BEEN INVOLVED IN A STRATEGY. GIVE THE MONEY TO A C T A OR C P.O.. LET'S HAVE THEM INVOLVED IN A BUYING AND SELLING STRATEGY RATHER THAN A ONE-WAY LONGER ONLY ALLOCATION STRATEGY. IF THEY DO THAT, LET'S MAKE SURE THAT TODAY AND EVERY OTHER PARTICIPANT IN THE FUTURES MARKET. HIDES -- ADVISE -- ADHERES TO RESTRICTIONS.
01:41:30	Krapels, Edward	WE DO NOT WANT THE OIL FUTURES MARKETS TO GO AWAY. THEY NEED MORE THAN 20% SPECULATION TO SURVIVE. THEY NEED MULTIPLES OF THE PHYSICAL MARKETS TRADING TO SURVIVE. WHAT WE HAVE HERE IS A MATTER OF DEGREE. THE MARKET'S HAVE BECOME EXCESSIVELY THE HOME OF THE SPECULATION THAT MR. MASTERS HAS TALKED ABOUT. WE DO NOT WANT TO REGULATE THE FUTURES MARKET OUT OF EXISTENCE. WE WANT TO REGULATED BACK TO THE POINT WHERE WAS IN THE 1990'S WHICH WAS AN EXCELLENT MARKET FOR HEDGERS.
01:42:16	Whitfield, Edward	I WAS READING A NEWSLETTER FROM A GENTLEMAN COVERING THE EUROPEAN MARKETS. SUPPLY AND DEMAND AND HE MADE THE COMMENT THAT HE WAS PREDICTING OIL PRODUCTION WOULD BE GOING DOWN BETWEEN 5 MILLION BARRELS A DAY AND I NOTICED THAT THERE WAS TESTIMONY IN THE SENATE A COUPLE DAYS AGO AND HE WAS TALKING ABOUT HE THINKS WILL PRODUCTION HAS PEAKED AND IT WILL BE GOING DOWN AROUND 8%. IN THE YEARS TO COME. ON A YEARLY BASIS AND OF COURSE, YOU HAVE TESTIFIED THIS MORNING THAT IF WE ADOPT REGULATORY CHANGES RELATING TO SPECULATIVE FUTURES MARKETS IN OIL, THEN WE CAN HAVE A SIGNIFICANT REDUCTION RELATIVELY SOON. OVERALL, WE KNOW THAT THE SUPPLY AND DEMAND IS GOING TO BE THE REAL ANSWER AND QUESTIONS OR HAVE TO ADDRESS. I WOULD ASK YOU, DO YOU AGREE WITH THIS VERY THAT I HAVE REFERRED TO, THE FELLOW AT THE EUROPEAN UNION SAYING HE THINKS THIS WOULD GO DOWN 5 MILLION BARRELS A DAY, BOONE PICKENS SAYING 8% A YEAR PRODUCTION. WOULD YOU AGREE WITH THAT?
01:43:29	Gheit, Fadel	THE PROBLEM IS THAT HIGHER WORLD PRICES PROVIDE NO INCENTIVE WHATSOEVER FOR OIL- PRODUCING COUNTRIES TO OPEN THEIR RESOURCES.
01:43:42	Gheit, Fadel	HIGHER OR PRICES DO NOT HELP SUPPLY. AT ALL.
01:43:45	Whitfield, Edward	WHY IS THAT?
01:43:47	Gheit, Fadel	IT IS VERY SIMPLE. BECAUSE THEY HAVE NO INCENTIVE TO GIVE ACCESS TO THE RESOURCES. EXXON MOBIL -- IS TURNING TO RICIN SAID. THIS IS NOT ONE OF THE SMARTEST COMPANIES BUT YOU HAVE NO ACCESS TO RESOURCES TREATED RUSSIA IS KEEPING -- KICKING OUT TO BE. -- BP. RUSSIA HAS NO INCENTIVE TO INCREASE PRODUCTION. SINCE THERE -- THEY HAVE SO MUCH MONEY THEY DO NOT KNOW WHAT TO DO WITH IT.
01:44:24	Whitfield, Edward	IS RUSSIA'S STILL THE NO. 1 PRODUCER IN THE WORLD OIL?
01:44:32	Gheit, Fadel	YES. IT IS THE LARGEST GROUP.
01:44:35	Whitfield, Edward	WHAT ABOUT THE REST OF YOU? DO YOU HAVE ANY THOUGHTS ON THIS PIQUING ISSUE? -- THIS PEAKING ISSUE?
01:44:48	Diwan, Roger	THERE IS PLENTY OF MONEY ON THE GROUND AND ANY TIME THE -- WE HAVE MORE OIL ON THE GROUND. IT IS AN ECONOMY CONCEPT. NOT THE PHYSICAL CONCEPT. IT IS $3 OIL WE WILL FIND MORE OIL. IT COSTS MORE TO GO GET. THE ISSUE HERE IS CAPACITY. THIS AND THAT -- IS AN INDUSTRY THAT WAS LOW ON PRICES AND BECAUSE OF THAT, LOOK RETURNS ON CAPITAL AND HAS NOT INVESTED AND WE ARE IN A SITUATION OF A CATCH-22. WE DO NOT HAVE SPARE CAPACITY AND IS UNLIKELY THAT ANYBODY WILL EXCEPT TO BUILD SPARE CAPACITY JUST FOR THE FUN OF IT. WE'RE ASKING PRODUCERS TO INVEST HUNDREDS OF BILLIONS OF DOLLARS TO CREATE A CAPACITY THAT IT WILL NOT USE TO BRING DOWN THE COSTS OF THEIR OWN ECONOMY.
01:45:43	Whitfield, Edward	WHAT% OF THE OIL RESERVES ARE HELD BY GOVERNMENTS TODAY?
01:45:47	Diwan, Roger	THE RESERVE THAT ARE HELD BY GOVERNMENTS BUT WE DO NOT HAVE ACCESS TO OUR 77% IN OUR LATEST CALCULATION.
01:46:00	Krapels, Edward	DOES ANYONE ELSE -- THE PROBLEM OF ACCESSING THE RESOURCE BASE IS THE NUMBER-ONE PROBLEM. IT SHOWS A SUPPLY AND ELASTICITY TO PRICE. YOU CAN LET THE PRICE GO UP BUT THE SUPPLY DOES NOT FOLLOW. DO NOT TAKE THE NEXT STEP. WHICH IS WHAT BOONE PICKENS HAS DONE. ARGUING THAT YOU WILL SEE AN 8% DECLINE IN WORLDWIDE OIL PRODUCTION PER YEAR. THAT IS NOT THE CASE. EVERY RESPONSIBLE OIL FORECASTING ORGANIZATION I NOW HAS WILL PRODUCTION GOING UP OVER THE NEXT FEW YEARS, NOT GOING DOWN. IT IS A QUESTION OF SUPPLY AND DEMAND ARE TIGHT BUT SUPPLY IS NOT FALLING OFF A CLIFF.
01:46:41	Whitfield, Edward	MAYBE HE MEANT PRODUCTION FIELDS WERE GOING DOWN.
01:46:46	Masters, Michael	ONE OF THE REASONS FINANCIAL INVESTORS IMPACT OIL IS THE SUPPLY IN A LOSS TO SAY. HAVING THAT SUPPLY IN COMBINATION WITH ENORMOUS AMOUNTS OF INVESTMENT FLOWS COMING IN TO THAT COMMODITY FUTURES MARKET HAS LED TO AN EXPLOSION IN PRICES AND SO THAT IS THE REAL ISSUE. YOU HAVE GOT BOTH THINGS THAT ALLOW PRICES TO MOVE.
01:47:27	Inslee, Jay	WE HAVE TALKED ABOUT FIVE ACTIONS, CLOSING THREE LOOPHOLES, POSITION LIMITS, MARGIN REQUIREMENTS, BUT SOME HAVE ARGUED IF WE TAKE WHAT I CONSIDER FAIRLY COMMON SENSE ACTIONS THAT IT WOULD DRIVE THESE DARK MARKETS OFFSHORE, OVERSEAS, THIS WOULD NOT SOLVE THE PROBLEM. WHAT IS THE RESPONSE TO THAT? WHY SHOULD THE U.S. -- WE DO NOT HAVE TOTAL GLOBAL HEGEMONY OVER THIS CLIMATE.
01:47:57	Krapels, Edward	THEIR ONLY TWO PLACES WE CAN TRADE OIL IN THIS WAY AND THAT IS THE U.S. AND UK. IF THIS COUNTRIES ADOPT SIMILAR POLICIES THERE IS NO OTHER PLACE THEY CAN GO. HIST THE TRADITION OF HAVING LIQUID FUTURES MARKETS HAS NOT EXTENDED TO OTHER COUNTRIES. PEOPLE WOULD NOT PART BILLIONS OF DOLLARS IN DUBAI.
01:48:22	Masters, Michael	THE REASON WHEN PEOPLE SAY THAT, IT IS AN EMPTY THREAT. AND THE REASON THAT IS IS BECAUSE THE PHYSICAL DELIVERY FUNCTIONALITY THAT OUR MARKETS OFFERED IS VERY IMPORTANT. THAT HELPS ANYBODY THAT IS DOING BUSINESS IN THE U.S. THAT IS TRANSACTING AND THEIR TRADING PARTNERS STAY IN THE U.S. WE ARE THE LARGEST PRODUCER OF FOOD IN THE WORLD. WE'RE THE LARGEST CONSUMER OF ENERGY IN THE WORLD. PHYSICAL PRODUCERS WANT TO USE AND CONSUMERS WANT TO USE DELIVERY TERMINALS POTENTIALLY IN OUR MARKETS AND HAVING THAT PHYSICAL PEOPLE IN OUR MARKETS ALLOWS FOR BETTER PRICE DISCOVERED -- WITH A PHYSICAL FAULTS AND OPERATE AN EXCHANGE OVERSEAS, I CAN WITH FINANCIAL FUTURES, IT IS A MUCH DIFFERENT PROPOSITION. YOU WILL PROBABLY GET A CASINO IN THE SKY AND IT DOES NOT HAVE ANY BEARING ON WHAT THE PRICE OF CRUDE OIL OR OTHER PHYSICAL COMMODITIES SHOULD BE.
01:49:24	Inslee, Jay	YOU HAVE PORTRAYED AN INCREDIBLY DRAMATIC PICTURE. IF WE'RE TALKING ABOUT 30 OR 50% REDUCTIONS IN THE PRICE OF OIL, THE ECONOMIC RAMIFICATIONS THAT ARE STUNNING IN ALL THIS HOT I WANT TO CONTRAST . IF YOU HAVE TALKED ABOUT A REDUCTION IN PRICES ASSOCIATED WITH EXCESS SPECULATION. IF YOU HAD INCREASED PRODUCTION IN THE NEXT 10 YEARS, A WORLDWIDE 1% WHICH REPRESENTS IF EVERYTHING OPTIMISTICALLY WAS PERFECT, DRILLING EVERYWHERE IN THE U.S. FROM OFFSHORE TO THE ARCTIC TO THE NATIONAL MALL AND THE SOUTH LAWN OF THE WHITE HOUSE, YOU MIGHT GET AN INCREASE OF 1% OF INCREASED CRUDE PRODUCTION IN THE WORLDWIDE MARKET. HOW WOULD THAT DECREASE THE PRICE OF OIL? IS IT ANYWHERE CLOSE TO 30% OR 50% REDUCTION IN DEALING WITH EXCESS SPECULATION?
01:50:36	Diwan, Roger	HOW MUCH DEMAND IS GROWING IS THE QUESTION. I COULD SUGGEST IF IT IS GROWING AT 1%, DEMAND WOULD GROW AT THE SAME LEVEL. THE ISSUE HERE IS IT IS IMPORTANT TO UNDERSTAND IF YOU DO NOT HAVE -- YOU HAVE A PROBLEM IN THIS MARKET AND THIS MARKET IS INHERENTLY BULLISH. WHAT YOU ARE CREATING IS ANY PROBLEM HAPPENING ANYWHERE IN THE WORLD AT ANY TIME, IT MEANS YOU HAVE LESS SUPPLY THAN WHAT YOU EXPECTED. EVERY TIME YOU HAVE LESS APPLIED AND WHAT YOU EXPECTED AND HIKING IT MEANS PRICES WILL GO UP. -- IT MEANS PRICES WILL GO.
01:51:17	Krapels, Edward	IS THERE ANYTHING THAT GIVES YOU MORE BANG FOR THE BUCK IN THE SHORT TERM THAN WHAT WE'RE DISCUSSING TODAY IN TERMS OF RELIEF FOR CONSUMERS AND THE ANSWER IS NO. THIS IS THE BIGGEST BANG FOR THE BUCK IN THE SHORT TERM. THIS WHERE -- WE HAVE TO DO THINGS TO REDUCE DEMAND AND TO INCREASE SUPPLY. EVERYONE UNDERSTANDS THAT BUT -- AT AND $80 PRICE LEVEL.
01:51:50	Inslee, Jay	IF WE WANT TO INCREASE SUPPLY, WE NEED TO HAVE ALTERNATIVES TO OIL. WE HAVE NOT TALKED ABOUT THAT. IF YOU WANT TO DECREASE THE DEMAND FOR OIL, PROVIDE AMERICANS AND ELECTRIFIED TRANSPORTATION SYSTEM, USE THE BATTERY COMPANY TO DRIVE OUR CARS ELECTRICALLY, USE THESE SAFIRE ENERGY COMPANY WHICH HAS FOUND A WAY TO DEVELOP ASMTSM GASOLINE FROM ALGAE. GET AN ALTERNATIVE TO OIL. I CAN REPORT TO YOU THAT IS GOING TO HAPPEN HERE BECAUSE THE U.S. GOVERNMENT ULTIMATELY IS GOING TO DRIVE THOSE INNOVATIONS.
01:52:40	Barton, Joe	I HAVE SOME COMMENTS. I HAVE LISTENED AS WE HAVE TALKED ABOUT THIS ISSUE. I COULD HYPOTHESIZE THAT WE COULD PRODUCE A MILLION BARRELS A DAY AT OF ALASKA THAT WE ARE NOT DOING. A HALF-MILLION A DAY. PROBABLY ANOTHER MILLION TO 2 MILLION BARRELS A DAY OFF THE ATLANTIC COAST AND 2 MILLION BARRELS OF SHALE OIL AND A MILLION TO 2 MILLION BARRELS A DAY FROM COLD LIQUIDS. IF WE WERE DOING THAT WE WOULD DOUBLE DOMESTIC OIL PRODUCTION HERE AND GIVEN THE TIGHTNESS OF THE WORLD OIL MARKETS WE WOULD HAVE A DIFFERENT SUPPLY AND DEMAND. WE'RE NOT DOING IT. I THINK SPECULATION IS A PROBLEM. I AGREE WITH WHAT -- IN THE SHORT TERM IT IS EASIEST TO DO BUT IT IS EASIER THAN PHYSICALLY GOING INTO THE FIELD AND DEVELOPING OUR DOMESTIC RESOURCE BASE. TO SAY THAT THE ONLY ANSWER IS PURELY TO MAKE IT MORE DIFFICULT TO PLAY IN THE FUTURES MARKET AND THE COMMODITIES OR SPECIFICALLY OIL IS DISINGENUOUS BECAUSE THE FUTURES MARKET TRACK REALITY IN THE WORLD AND THE REALITY IN THE WORLD IS WE HAVE A TIGHTNESS IN THE DEMAND SUPPLY SITUATION THAT IS SPECULATES YOU ARE -- SPECULATORS ARE TAKING ADVANTAGE OF BECAUSE IF YOU'RE WATCHING THE VALUE OF THE DOLLAR DECLINE, 1% A MONTH OR 2% A MONTH, YOU CANNOT PUT A LOT OF MONEY IN THE STOCK MARKET. YOU GO INTO SOMETHING THAT HAS THE ABILITY TO BE A HEDGE AGAINST INFLATION AND THE CLIENT OF THE VALUE OF THE DOLLAR AND IF THERE ARE NO LIMITS IN THE FUTURES MARKET, BUT IT IS A RATIONAL DECISION FOR THESE HEDGE FUNDS AND THESE OTHER FUNDS TO PUT A LOT OF MONEY IN THE FUTURES MARKET. IT IS RATIONAL. PEOPLE ARE RATIONAL WITH MONEY. MY QUESTION IS, CAN YOU PHYSICALLY, IN THE U.S. MARKET, CAN WE DISCRIMINATE BETWEEN A PHYSICAL PLAYER WHO IS SELLING A REAL BAYROU OR BUYING A REAL BARREL IN A NON PHYSICAL PLAYER, CAN YOU IN AN OPEN SOCIETY HAVE DIFFERENT RULES BASED ON WHAT PEOPLE ARE IN THE MARKET. IS THAT POSSIBLE? ANYBODY?
01:55:33	Gheit, Fadel	YES, IT IS POSSIBLE BECAUSE THEY HAVE DIFFERENT GOALS AND OBJECTIVES. A PHYSICAL HEDGER MANAGE THE COMMODITY RISK. THEY ARE IN THE BUSINESS NOT TO MAKE MONEY. THEY ARE IN THE BUSINESS NOT TO LOSE MONEY. THE FINANCIAL PLAYERS ARE IN THE BUSINESS TO MAKE A LOT OF MONEY IN A SHORT TIME.
01:55:58	Barton, Joe	EVERYONE AGREES WE COULD HAVE DIFFERENT RULES FOR DIFFERENT TYPES OF POTENTIAL INVESTORS.
01:56:07	Krapels, Edward	WE HAVE DONE SO FOR DECADES A.
01:56:11	Barton, Joe	DO YOU ALSO AGREE OR DISAGREE ON THE SUGGESTION, I HAPPEN TO THINK THAT WE COULD REQUIRE A HIGHER MARGIN FOR A NON PHYSICAL INVESTOR IN THE FUTURES MARKET. DO YOU AGREE WITH THAT?
01:56:27	>>	YES.
01:56:32	Barton, Joe	TO GO TO THE QUESTION THAT WAS RAISED EARLIER, I HAVE BEEN IN CLOSE CONTACT WITH THE MAKERS OF THE U.S. MARKET. IN CHICAGO AND NEW YORK. MORE IN NEW YORK AND CHICAGO. I AM TOLD THAT IF WE TIGHTEN UP AND REQUIRE MORE TRANSPARENCY AND HIGHER MARGINS AND ELIMINATE EXEMPTIONS THAT A LARGE NUMBER OF THE SO-CALLED SPECULATORS, THE PAPER BARREL OR VIDEO VERO PEOPLE ARE GOING TO GO TO THE ICE MARKET OR SOME OTHER MARKET, TWO OF YOU SEEM TO INDICATE THEY WILL NOT GO THERE BECAUSE THEY DO NOT HAVE THOSE MARKETS -- THOSE MARKETS MAY NOT HAVE THE FINANCIAL STABILITY BUT I THINK WHEN THE NEW YORK GUY TESTIFIES LATER HE WILL SHOW YOU THAT THE ICE MARKET HAS GROWN EXPONENTIALLY AS COMPARED TO THE NEW YORK MARKET. HOW CAN WE REGULATE THE UNITED STATES IN A WAY THAT DOES SOME OF THE GOOD THINGS WE WANTED TO DO AND HAVE IT ROLL OVER INTO THE ICE MARKET AND THE DUBAI MARKET AND MAY BE THE HONG KONG MARKET FOR THAT MATTER? HOW'D WE DO THAT?
01:57:48	Gheit, Fadel	THE TWO MARKETS ACCOUNT FOR ALMOST 90% OF THE TRADE IF WE CONTROL BOTH MARKETS, WE BASICALLY CONTROL 90% OF THAT.
01:58:00	Barton, Joe	IF WE CHANGE THE MARKET CONDITION IN THE U.S., WHAT IS TO SAY --
01:58:08	Gheit, Fadel	WE CHANGE THE RULES IN THE U.S. AND WE WILL HAVE TO REQUIRE A RULE CHANGE ON THE ICE MARKET. OR, ANY COMPANY DOING BUSINESS IN THE U.S. MUST PLAY BY THE U.S. ROLE. WHETHER IT IS ON THE ICE OR ON THE NON-ICE.
01:58:27	Diwan, Roger	YOU NEED TO REGULATE THOSE MARKETS AND THAT WILL TAKE CARE OF THAT. THERE IS A THIRD MARKET. THE OVER-THE-COUNTER MARKET. IT IS A GREY MARKET WE DO NOT KNOW MUCH ABOUT.
01:58:42	Barton, Joe	WE HAVE TO. HOW DO WE -- WE SIT HERE IN WASHINGTON AND WE THINK WHATEVER WE DO RULES THE WORLD. BUT WE HAVE A GLOBAL MARKET IN OIL. I AM NOT SURE HOW IF WE DO WHAT WE THINK IS THE RIGHT THING, HOW WE GET THE REST OF THE WORLD TO FOLLOW SUIT. HOW DO WE GET THE BRITISH PARLIAMENT TO GET THE SAME RULES IN PLACE FOR THE ICE EXCHANGE WHILE IT IS PHYSICALLY IN ATLANTA? IT IS BASED IN LONDON AND HOW WE MAKE SURE THAT DUBAI OR KUWAIT OR WHEREVER DO NOT CREATE THEIR OWN MARKET BECAUSE THEY CAN HAVE LOWER MARGINS AND LESS TRANSPARENCY.
01:59:25	Diwan, Roger	MOST OF THE FINANCIAL PLAYERS WILL PUT MONEY IN A MARKET THAT IS REGULATED OR STABLE THAT YOU KNOW WHAT IS HAPPENING. I DO NOT IMAGINE THAT LIQUIDITY WOULD MOVE OFFSHORE. I BELIEVE YOU HAVE TO REGULATE THOSE EXCHANGES IN THE SAME WAY. AND YOU CLOSE MOST OF THE ISSUES HERE ON THE FUTURE EXCHANGE. THE WAY I LOOK AT THE OIL MARKET IS LIKE A HUGE ICEBERG AND WE LEFT SEE THE TIP WHICH IS THE FUTURE MARKET. THERE IS ALSO WHAT IS HAPPENING BELOW THE WATER WHICH IS THE OVER-THE-COUNTER MARKET. I DO NOT THINK YOU CAN DO MUCH ABOUT OR AT LEAST I DO NOT KNOW HOW YOU WOULD GO ABOUT IT.
02:00:03	Barton, Joe	EVERYBODY AGREES THAT WE CAN IN SOME WAY REQUIRE COMPARABILITY OR CONFORMITY WITH THE U.S. MARKET REGULATIONS. IT IS LEGALLY CONSTITUTIONALLY REALISTICALLY POSSIBLE.
02:00:20	Masters, Michael	ANY FUTURES CONTRACT THAT CALLS FOR DELIVERY INSIDE THE U.S., WE ARE THE LARGEST CONSUMER OF ENERGY IN THE WORLD
02:00:28	Masters, Michael	UNINTELLIGIBLE] UNLESS SPECIFICALLY EXEMPTED. IF NOT EXEMPTED THAN A PERSON IN THE U.S. MAY LAWFULLY TRADE THE CONTRACT. I DO NOT THINK THAT THERE IS ANYWHERE IN THE WORLD THAT ONE LOSES U.S. SPECULATORS FOR U.S. PHYSICAL PLAYERS. THE 60% OF THE VOLUME ON THE CASH STILL CONTRACT ON THE INTERNATIONAL EXCHANGE, THE EYES, IS TREATED BY U.S. ENTITIES. IF THE CFTC HAD NOT EXEMPTED EYES FROM EXCESS -- REGULATION, THEY WOULD NOT CUT -- TRADE THE CONTRACT AND IT WOULD BE DIFFICULT FOR TO GET OFF THE GROUND.
02:01:11	Barton, Joe	, AS ONE MORE QUESTION? -- COULD I ASK ONE MORE QUESTION? IF WE WERE TO SET A MARGIN BY LAW OR REGULATION IN THE U.S. MARKET FOR NON PHYSICAL TRADERS IN THE OIL FUTURES MARKET, WHAT IS A BALLPARK FIGURE ON WHAT THAT IS? IT IS NOT AN EQUITY MARKET LIKE MR. MASTERS POINTED OUT. THIS IS AN OPTION TO PURCHASE OR SELL AT A GIVEN PRICE AT A GIVEN TIME. INSTEAD OF 5% OR 3% LIKE IT IS TODAY, WHAT WOULD THAT BE? DO YOU WANT IT TO BE AS HIGH AS 50% JUST A GENERAL BALLPARK FIGURE FOR NON PHYSICAL PLAYERS IN THE OIL FUTURES MARKET OF THE U.S.
02:01:56	Gheit, Fadel	I WOULD GO FOR THE WHOLE THING, 50%.
02:02:00	Barton, Joe	SAME AS STOCKS, THEN?
02:02:05	Krapels, Edward	I WOULD GET TO A LOWER NUMBER MORE SLOWLY. I WOULD GRADUALLY INCREASE THE MARGINS OVER TIME AND MAYBE GET TO A ONE-THIRD REQUIREMENT.
02:02:13	Barton, Joe	33%. ANYBODY ELSE? DOES ANYBODY VOTE TO KEEP IT THE SAME? DO YOU ALL THINK IT NEEDS TO GO UP? THANK YOU.
02:02:24	Stupak, Bart	QUESTIONS?
02:02:35	Melancon, Charlie	RECENTLY VISITED WITH OIL MINISTERS IN THE MIDDLE EAST AND WE WERE TAKEN ABACK WHEN THEY SAID THEY WOULD MUCH RATHER SEE THE PRICE BETWEEN $70.80 DOLLARS THAN WHERE IT IS NOW. I GROPED IN THE SUGAR INDUSTRY AND MY DAD SAID THE ONLY PEOPLE WHO MAKE MONEY WHEN SUGAR MOVES UP ARE THE BROKERS. THERE IS A REASON TO SELL. I GUESS THAT IS WHAT WE'RE DEALING WITH HERE. ONE OF THE THINGS I WAS LOOKING AT ON YOUR CHART THAT YOU GAVE US WITH OIL PRICES AND STRUCTURAL TRENDS, IT SHOWED THAT THE PRICE STARTED MOVING UP AROUND JANUARY OF 2004. I GOT UP TO $80, APPARENTLY, AND IN THE EARLY PART OF 2006 AND DROPPED OUT AND TOOK OFF. IS THERE A POINT IN HERE WHERE YOU COULD SHOW THAT THE CFTC WITH REGULATING THE ABILITY OF PEOPLE TO HEAD?
02:03:32	Diwan, Roger	NOT THAT I KNOW OF.
02:03:36	Melancon, Charlie	IS THERE SOMEONE?
02:03:38	Diwan, Roger	THE PRICE MOVEMENT IS EXPLAINED BY THE PHYSICAL HERE.
02:03:43	Krapels, Edward	IN THE LAST QUADRA?
02:03:45	Melancon, Charlie	LOOKING AT THE GRAPH THAT WAS THERE, WE HAD MOVEMENT UPWARD AND A SPIKE DOWN AND THEN IT TOOK OFF.
02:03:54	Diwan, Roger	THE SPIKE DOWN WAS BECAUSE OIL STOCKS WERE BUILDING FAST AND AFTER THAT OIL, OPEC CUT PRODUCTION OR REDUCED SUPPLY. THAT IS WHAT HAPPENED IN 2006 WE SAW PRICES DECLINED TO $52.
02:04:12	Krapels, Edward	WE SAW MOSTLY AN INCREASE IN THE POSITIONS OF FUNDS.
02:04:19	Krapels, Edward	IT WAS A LARGE INCREASE THAT DROVE THE PRICE UP THE LAST $135.
02:04:24	Melancon, Charlie	THAT IS WHAT I WAS TRYING TO FIND OUT. IF THAT IS A DIRECT CORRELATION AND IF THAT IS WHEN EXCEPTIONS WERE MADE.
02:04:37	Krapels, Edward	IT IS HARD TO TRACK THAT.
02:04:39	Melancon, Charlie	WHEN DID A NICE START
02:04:40	Krapels, Edward	2000. -- WHEN DID ICE START TRADING?
02:04:50	Krapels, Edward	2000. IT TOOK OFF AFTER THE ENRON COLLAPSE.
02:04:57	Melancon, Charlie	THE ENRON COLLAPSE WAS -- 2002? THAT IS WHEN IT STARTED MOVING ON A STEADY CLIMB, MAY BE MADE YEAR OF 2003. -- MADE YEAR OF 2003. DO ANY OF YOU HAVE THE PRICE FOR GASOLINE OR PULES BY COUNTRIES OR REGIONS -- ? I PICK UP BITS AND PIECES ON THE NEWS. SAUDI ARABIA SUBSIDIZED DUBAI AND ABU DHABI AND THE UAE BUT PLACES IN EUROPE AND SOUTH AMERICA OR WHEREVER, WE KNOW WHAT THE PRICE --
02:05:51	Gheit, Fadel	EUROPEANS ARE PAYING DOUBLE WHAT WE ARE PAYING. CHINA IS PAYING MORE THAN HALF WHAT YOU ARE PAYING. THE DIFFERENCE BETWEEN WHAT WE PAY AND WHAT THE EUROPEANS ARE PAYING COME OUT -- THE DIFFERENCE IS THE GOVERNMENT SUBSIDIES. IT IS GOVERNMENT SUBSIDIES THAT INFLUENCE PRICE. [CAPTIONING PERFORMED BY NATIONAL CAPTIONING INSTITUTE] [CAPTIONS COPYRIGHT NATIONAL CABLE SATELLITE CORP. 2008] .
02:07:15	Gheit, Fadel	IT WOULD DEFINITELY HAVE AN IMPACT. SUPPLY WILL COOL OFF PRICES. PRICES WILL COME DOWN. TWO WAYS WE CAN INCREASE SUPPLY AND REDUCE DEMAND OR BETTER, WE COULD DO BOTH. THEY WOULD HAVE THE SAME IMPACT. PRICES WOULD GO LOWER.
02:07:31	Melancon, Charlie	WORLDWIDE WHAT IS THE PRICE OF REMINING?
02:07:36	Gheit, Fadel	75.
02:07:38	Melancon, Charlie	WHAT IS THE DAILY PRODUCTION?
02:07:40	Gheit, Fadel	PRODUCTION ABOUT 85.
02:07:43	Melancon, Charlie	PRODUCE 5 MILLION BARRELS A DAY MORE THAN WE'RE PROCESSING AND THE RESERVES ARE HOW MUCH PERCENT OF TOTAL?
02:07:49	Gheit, Fadel	THE RESERVE?
02:07:54	Melancon, Charlie	YES, WORLDWIDE. DO YOU KNOW WHAT THEY ARE, ALL RESERVES?
02:07:59	Gheit, Fadel	1.4 TRILLION BARREL.
02:08:01	Newsome, James E.	I DIDN'T MEAN WHAT WAS LEFT IN THE GROUND, WHAT DO WE HAVE THAT IS IN EXCESS OF OUT THERE GOING THROUGH THE PROCESS.
02:08:11	Gheit, Fadel	THIS IS RUSSIA AND THE MIDDLE EAST AND ALL OF THE COUNTRIES. THE NUMBERS ARE 2 TO 3 MILLION A DAY.
02:08:17	Melancon, Charlie	OKAY.
02:08:19	Melancon, Charlie	THANK YOU, M CHAIRMAN.
02:08:21	Melancon, Charlie	THANK YOU, GENTLEMEN.
02:08:23	Stupak, Bart	THANK YOU MR. WALTON. QUESTIONS, PLEASE.
02:08:25	Walden, Greg	THANK YOU. ARE THE PROCESSED RESERVES, THAT WHICH HAS BEEN EXTRACTED FROM THE GROUND AND IN THE PIPELINE IF YOU WILL AND IN STORAGE, ARE THEY GOING UP OR GOING DOWN? FOR GASOLINE, FOR OIL, FOR NOFRL GAS.
02:08:44	Diwan, Roger	THE SHORT-TERM, THE CHANGES, THE PRODUCT IS INCREASING AND THE CRUDE IS DECREASING.
02:08:48	Walden, Greg	OKAY. SO IF THE PROCESS PRODUCT IS INCREASING, THEN YOU WOULD THINK THAT -- IS IT INCREASING AT A RATE THAT KEEPS PACE WITH DEMAND, OR IS THE RATE OF DEMAND OUTSTRIPPING THE RATE OF INCREASE IN THE PROCESSED PRODUCT.
02:09:07	Diwan, Roger	THE PROCESSED PRODUCT IN THE UNITED STATES, THE AVERAGE IS ABOVE THE FIVE-YEAR AVERAGE. SO WE HAVE A LITTLE BIT MORE STOCK THAN WE USUALLY DO AT THIS TIME OF THE YEAR. HOWEVER, THIS MARKET, THE PRICE DISCOVERY OF THIS MARKET IS REALLY CRUDE, IS NOT PRODUCT LED.
02:09:23	Walden, Greg	OKAY. I THINK YOU INDICATE, CORRECT ME IF I GOT THIS WRONG, THAT $35 OF THE PRICE OF A BARREL OF CRUDE COULD BE TAGGED AT -- TO INCOMING MONEY, OF THE NONPHYSICAL TRADERS, IS THAT WHAT YOU ALL SAID OR SOMEBODY SAID?
02:09:40	Gheit, Fadel	I WOULD SAY MORE.
02:09:41	Walden, Greg	MORE?
02:09:42	Gheit, Fadel	MUCH MORE THAN THAT.
02:09:44	Walden, Greg	HOW MUCH?
02:09:47	Gheit, Fadel	I WOULD SAY HALF OF -- I WOULD SAY THAT THE DECLINE THIS THE DOLLAR HAD $10 OR $15 IN A PRICE SPIKE, AND THE DIFFERENCE BETWEEN THAT AND THE CURRENT PRICE IS FEWER SPECULATION.
02:10:04	Walden, Greg	SO $10 TO $15 IS THE PRICE OF THE DOLLAR, THE VALUE OF THE DOLLAR?
02:10:10	Gheit, Fadel	TIED TO THE CURRENCY AND THE DIFFERENCE BETWEEN $65 AND $130 OR $125 WOULD BE BASICALLY SPECULATION.
02:10:22	Walden, Greg	AND DO EACH OF YOU AGREE WITH THAT ANALYSIS?
02:10:25	Krapels, Edward	I THINK WE HAVE OUR OWN THOUGHTS. BUT IT IS PROBABLY AT THE LOW END OF THE RANGE, IN TERMS, THE HIGH ENDS OF THE RANGE, I EXPECTED SOMEWHERE IN THE 30'S TO 40'S.
02:10:39	Walden, Greg	MR. MASTERS, DO YOU HAVE ANY?
02:10:41	Masters, Michael	I THINK THE ANSWER IS, NOBODY REALLY KNOWS, WE, WE, I GET -- WHEN I TALK TO REFINERS, THAT'S WHAT THEY TELL ME. IS THAT THE PRICE SHOULD BE IN THE NEIGHBORHOOD OF $65 OR $70.
02:10:55	Walden, Greg	THERE HAVE BEEN SOME SENIOR MEMBERS AROUND THE INSTITUTION WHO HAVE -- INDIVIDUALS, THAT HAVE CALLED FOR NATIONALIZING OUR REFINERY SYSTEM. DO ANY OF YOU THINK THAT'S A GOOD WAY FOR THE MARKET OR TO REDUCE COSTS?
02:11:12	Gheit, Fadel	VERY BAD IDEA.
02:11:14	Diwan, Roger	I DON'T THINK WE HAVE A PROBLEM REFINING RIGHT NOW.
02:11:18	Walden, Greg	MR. MASTERS?
02:11:21	Masters, Michael	THE INTERESTING, I DON'T AGREE AT ALL. BUT --
02:11:25	Walden, Greg	NEITHER DO I.
02:11:27	Masters, Michael	BUT I WOULD MAKE ONE POINT. ONE OF THE INTERESTING THINGS HAPPENING WITH THE REFINERIES, ON THE ONE HAND, THEY GOT, AS I SAID, DEMAND AND DEMAND. INVESTOR DEMAND HELPING TO DRIVE UP INPUT COSTS WITH WHICH TO BUY CRUDE OIL AND THEY'RE BUYING GASOLINE, AND IN THE U.S. HAS GONE DOWN IN PRICE. IT IS HARD FOR THEM TO BUILD NEW REFINERIES, WHICH THEY HAVE A SITUATION WHERE IT IS GOING DOWN. IN PART BECAUSE OF INVESTOR ACTIVITIES.
02:12:01	Krapels, Edward	REFINERS ARE NOT THE PROBLEM. TRY TO BUILD A REFINERY IN THE UNITED STATES TODAY IS PRACTICALLY IMPOSSIBLE. SO NATIONALIZING IT WILL ONLY MAKE THAT WORSE.
02:12:11	Walden, Greg	GLAD TO HEAR YOU SAY THAT. I CONCUR, BUT YOU'RE THE EXPERTS, THERE ARE MEMBERS AROUND THIS BODY THAT THINKS THAT'S THE WAY TO GO. EVERYBODY IS TRYING TO FIND AN ANSWER HERE. IF -- SO IF WE WERE TO MOVE FORWARD AND REQUIRE SOME SORT OF LIMITATION ON HOW MUCH YOU CAN -- NONPHYSICAL TRADERS CAN DO, AND SOME MORE TRANSPARENCY, HOW LONG DO YOU THINK THAT WOULD HAVE TO BE IN EFFECT BEFORE WE SAW -- A REAL CHANGE IN THE PRICE OF CRUDE OIL? AND SO HOW MUCH, HOW MUCH AND HOW LONG?
02:12:48	Gheit, Fadel	IF WE ASSUME THAT SPECULATION IS PLAYING A MAJOR ROLE IN THE JUMP IN OIL PRICES, THESE PEOPLE CAN SWITCH VERY QUICKLY FROM LONG TO SHORT, BUT OTHER MEMBERS OF THE PANEL SAID YOU MIGHT TAKE LONGER TIME. BUT THE MARKET WOULD BE VERY -- EFFICIENT, VERY QUICKLY. AND IT WILL COME TO AN EQUAL LIBRIUM WHERE PRICES GO FASTER THAN MANY PEOPLE SAY. PEOPLE ARE NOT GOING TO WAIT TO LOSE MONEY, THEY'LL BE ALLOWED AS SOON AS POSSIBLE, CUT YOUR LOSSES AND BAIL OUT.
02:13:22	Walden, Greg	SORT OF WHAT IS HAPPENING IN THE HOUSING MARKET?
02:13:25	Gheit, Fadel	I WOULD SAY 30 TO 60 DAYS WOULD SEE AN IMMEDIATE IMPACT.
02:13:32	Diwan, Roger	IF YOU CHANGE THE REGULATION AND YOU CHANGE YOUR BEHAVIOR, YOU'LL HAVE AN INTEREST TO DO IT AS QUICKLY AS POSSIBLE BEFORE EVERYBODY ELSE, PROBABLY THEY'RE DOING IT ALREADY, BUT THAT'S THE IDEA. THEN YOU CAN ALLOW MORE TIME TO ADJUST, IF NEED BE, BUT I THINK THE BIGGER IMPACT WILL BE QUITE IMMEDIATE.
02:13:51	Walden, Greg	MR. MASTERS.
02:13:53	Masters, Michael	JUST TO HIS POINT, ONE OF THE INTERESTING THINGS I SAW LAST WEEK WHERE A COMMODITIES PRICES HAVE COME DOWN AND ON THE WIRE SOME PEOPLE SAID THAT WAS BECAUSE OF THE THREAT OF POTENTIAL CONGRESSIONAL LEGISLATION, SO WHEN, WHEN THE NEWS WIRES WERE SAYING, THAT PEOPLE ARE ALREADY REACTING TO THAT, YOU KNOW, I THINK THAT IS
02:14:14	Krapels, Edward	I AGREE. WHILE I WOULD LIKE TO GIVE PEOPLE TIME TO MAKE THESE IMPORTANT ADJUSTMENTS, MY GUESS IS THERE WILL BE QUITE A STAMPEDE TO LIQUIDATE POSITIONS QUICKLY.
02:14:28	Walden, Greg	SO IF WE DID THAT PIECE, MORE TRANSPARENCY OR DIFFERENT POSITIONING RIRLTS AND ALL, AND IF WE DID, IF WE PASSED LEGISLATION, SAYING WE'RE GOING TO ALLOW ACCESS TO DOMESTIC SUPPLY, ON SHORE AND OFFSHORE, WHICH DO YOU THINK WOULD HAVE THE MOST VALUE IN THE MARKETPLACE TO CONSUMERS? I REALIZE ONE WOULD BE VERY QUICK. ONE WOULD BE LONG-TERM, BUT BOTH WOULD SEND SIGNALS TO A MARKET THAT IS A LITTLE DYSFUNCTIONAL RIGHT NOW, CORRECT?
02:14:57	Gheit, Fadel	BOTH ARE NEEDED. BUT ONE IS IMMEDIATE AND THE OTHER LONGER TERM. BOTH ARE NEEDED. THERE'S NO ONE BETTER THAN THE OTHER. THEY'RE BOTH NEEDED AND WE NEED TO START THEM NOW.
02:15:09	Walden, Greg	BOTH ARE NEEDED, ONE HAS IMMEDIATE IMPACT.
02:15:13	Gheit, Fadel	IN TERMS OF ENERGY SECURITY, LATTER IS MUCH MORE IMPORTANT.
02:15:17	Walden, Greg	MR. DIWAN, DO YOU AGREE WITH THAT?
02:15:20	Diwan, Roger	I DON'T KNOW ANYONE THAT WOULD BUY OR SELL OIL TODAY. I THINK THEY WILL WAIT TO SEE WHAT HAPPENS AND WHAT HAPPENS TO DEMAND AND SUPPLY IN THE REST OF THE WORLD. I DON'T THINK PEOPLE WILL SIGNAL BUY OR SELL ON THAT CHANGE.
02:15:33	Walden, Greg	ALL RIGHT. MR. MASTERS.
02:15:36	Masters, Michael	I WOULD JUST GO BACK TO MY EXAMPLE OF THE PERSON LOSING WEIGHT. WE'VE GOT A CHRONIC IB, WHICH IS ENERGY SECURITY THAT CAN BE SOLVED WITH LEGISLATION. WE GOT AN ACUTE ISSUE WHERE A PATIENT IS DYING. WE NEED TO SAVE THE PATIENT FIRST.
02:15:51	Walden, Greg	MAYBE FOR THE A CRASH DIET BUT A LONG-TERM REBALANCING OF WHAT WE DO.
02:15:56	Walden, Greg	I THINK -- BETTER IN THE LONG-TERM?
02:15:59	Masters, Michael	I THINK IN THIS CASE, THAT --
02:16:02	Walden, Greg	RIGHT.
02:16:05	Masters, Michael	I THINK THAT -- THAT WE WANT TO USE THE QUICKEST MEANS AVAILABLE TO HELP SAVE THE PATIENT, THEN WE CAN DEAL WITH THE LONGER TERM ISSUE OF DIET AND EXERCISE.
02:16:13	Walden, Greg	RIGHT. SO CRASH DIET FOR IMMEDIATE WEIGHT LOSS. CHANGES.
02:16:19	Walden, Greg	DOCTOR?
02:16:21	Krapels, Edward	I HATE TO SEE THE TWO ACTIONS LINKED. I THINK IT WOULD BE NICE TO DO THEM SEPARATELY BECAUSE I THINK THE FIRST ONE, THE ONE WE'RE TALKING ABOUT HERE TODAY, IS ACTUALLY FAIRLY EASY TO DO. I THINK RELEASING RESERVES FOR FUTURE PRODUCTION IS -- IS MUCH MORE CONTENTIOUS AND DIFFICULT ISSUE.
02:16:38	Walden, Greg	CONTENTIOUS OR NOT, IS IT THE RIGHT THING TO DO FOR THE COUNTRY'S ENERGY SECURITY AND FOR THE PRICE FOR CONSUMERS IN AMERICA?
02:16:44	Krapels, Edward	IT IS. IF YOU CAN GET THE LEGISLATION PASSED, THAT WOULD BE GREAT.
02:16:50	Walden, Greg	THANK YOU.
02:16:53	Stupak, Bart	MR. GREEN, QUESTIONS.
02:16:54	Green, Gene	THANK YOU, MR. CHAIRMAN. APPRECIATE THE SECOND ROUND. YET, YOUR TESTIMONY CALLS FOR SETTING VOLUME LIMITS FOR COMMERCIAL TRADERS SUCH AS OIL COMPANIES AND REFINERS RELATED TO THEIR PHYSICAL NEEDS. WOULD YOU EXPLAIN THE PURPOSE OF THIS RECOMMENDATION, BECAUSE IT SEEMED LIKE THAT'S NOT THE PROBLEM, THIS MORNING TALKED ABOUT.
02:17:18	Gheit, Fadel	BASICALLY THIS WAS THE BASIS FOR STEPPING AND TRADING LIMITS FOR NONCOMMERCIAL. I'M SAYING LET'S START WITH THE PHYSICAL TRADERS FIRST. THE PEOPLE WHO ARE GOING TO -- TO OWN A BARREL OF OIL, WHETHER AIRLINE OR REFINERY COMPANIES, WHATEVER. THEN SET WHAT IS NEEDED FOR THE FINANCIAL MARKET, IN TERMS OF VOLUME. SO THE BASIS SHOULD BE THE PHYSICAL MARKET AND THEN WE SHOULD SEE, WE SHOULD STUDY, WE SHOULD EXAMINE HOW MUCH MORE LIQUIDITY NEEDED TO BE PROVIDED BY THE FINANCIAL MARKET. AND BASED ON THAT, I DON'T WANT TO PUT ANY TRADING LIMIT BEFORE I KNOW EXACTLY WHAT -- WHAT THE INDUSTRY NEEDS, WHAT THE AIRLINE INDUSTRY NEEDS, WHAT THE CHEMICAL INDUSTRY NEEDS. AND THEN OF THE COLLECTIVE VOLUME IF YOU WILL, WE SET THE VOLUME OFF THEIR FINANCIAL MARKET.
02:18:16	Green, Gene	IN THIS NEXT TWO QUESTIONS, FOR EVERYONE. AND -- ONE OF THEM IS ON JUNE 6,, THERE WAS AN $11 INCREASE IN THE CRUDE OIL, AS FAR AS SUPPLY AND DEMAND. HOW DO YOU EXPLAIN THAT AND WHAT EXPLANATION IS THERE FOR THAT? FOR THAT $11 ON THAT ONE DAY?
02:18:39	Diwan, Roger	I THINK THERE WERE TWO EVENTS THAT DAY WHICH WERE IMPORTANT. ONE WAS THE -- THE DISCUSSION BY THE HEAD OF THE EUROPEAN CENTRAL BANK TO INCREASE INTEREST RATES, SO IT HAS AN IMMEDIATE IMPACT TO LOWER THE VALUE OF THE DOLLAR AND INCREASE THE VALUE OF THE EURO. WE HAD PEOPLE THAT WERE SELLING OIL, BECAUSE THEY FELT FUNDAMENTALS WERE WEEK AND WERE SHORT AND HAD TO COVER. THE OTHER WAS THE ISRAELI MEMBER THAT SAID HE SHOULD ATTACK AND IT WAS UNAVOIDABLE. THESE EVENTS HAVE PUSHED OIL PRICES MUCH HIGHER.
02:19:15	Krapels, Edward	IF WE LIVE IN A WORLD WHERE AN OBSCURE STATEMENT BY AN ISRAELI POLITICIAN CAN MAKE THE PRICE OF A COMMODITY LIKE OIL GO UP, THEN WE'RE IN DEEP TROUBLE AND NEED TO DO SOMETHING ABOUT IT.
02:19:27	Masters, Michael	I DON'T THINK THERE WAS ANY CASE, IT WAS DRIVEN BY SPECULATION. THOSE KIND OF MOVES.
02:19:32	Green, Gene	AND LET ME GIVE YOU AN EXAMPLE, AND I KNOW YESTERDAY, SAUDI ARABIA HAD -- PRODUCING NATIONS THERE AND OUR SECRETARY WAS THERE, ABOUT TWO WEEKS AGO, SAUDI ARABIA MENTIONED THAT THEY WERE GOING TO INCREASE PRODUCTION ABOUT 200,000 BARRELS. IN ABOUT A WEEK AGO, THERE WAS A -- A RIG OFF THE COAST OF LOUISIANA THAT B.P. HAD CALLED THE THUNDER HORSE THAT WAS HURT DURING KATRINA AND HAD TO BE HAULED IN. IT WAS PRODUCING 250,000 BARRELS A DAY, THAT HAD NO IMPACT ON THE MARKET. IS THAT TRUE?
02:20:10	Diwan, Roger	WE'VE BEEN WAITING FOR THUNDER HORSE FOR THREE OR FOUR YEARS.
02:20:14	Green, Gene	IT IS PRODUCING NOW, BUT WAIT UNTIL ANOTHER HURRICANE. I GUESS THAT'S THE CONCERN BECAUSE LIKE YOU SAID, SOMEBODY CAN -- AN ISRAELI OFFICIAL CAN SAY SOMETHING, SOME OF US ARE SO FRUSTRATED. WE HAVE ALMOST 700 MILLION BARRELS, SOME HAVE SAID, WHAT IF THE PRESIDENT MENTIONED THAT WE'RE GOING TO START RELEASING WITHOUT A TIMETABLE FROM THE IMANT PACT. WITHOUT A TIMETABLE, WHAT WOULD THAT DO TO THE SPECULATORS?
02:20:47	Gheit, Fadel	THAT WOULD COOL OFF SPECULATION. I CAN'T QUANTIFY IT. IT DEFINITELY GOING TO COOL OFF SPECULATION. HISTORY HAS SHOWN WHEN PRESIDENT BUSH DID IT IN THE GULF WAR, IT HAD IMMEDIATE IMPACT. WHEN PRESIDENT CLINTON DID IT, IT HAD IMMEDIATE IMPACT. IT HAS PSYCHOLOGICAL IMPACT ON THE MARKET. REMEMBER, IT IS THE MARKET THAT RUNS ON SPECULATION AND EXPECTATION. NOT THE PHYSICAL, NOT THE PHYSICAL, FOLKS, A -- THEY MADE A DISCOVERY, OFFSHORE BRAZIL AND ALL OF A SUDDEN OIL PRICES DROPPED. THIS FIELD IF DEVELOPED WILL TAKE FIVE YEARS, BEFORE WE SEE A DROP OF OIL IN THE MARKET. BUT GUESS WHAT, THE MARKET COOLED OFF IMMEDIATELY. IT IS A KNEE JERK REACTION TO SOMETHING THAT IS GOING TO HAPPEN YEARS FROM NOW. IT IS NOT PHYSICAL MARKET, IT IS ALL EXPECTATION.
02:21:38	Diwan, Roger	IF I CAN ANSWER THAT. I CAN HAVE EXACTLY THE CONTRARY SCENARIO, WHICH MEANS IF THIS PRESIDENT RELEASED OIL RIGHT NOW, THE MARKET WILL BELIEVE WE'RE GOING TO BE ATTACKING LATER ON AND OIL PRICES WILL INCREASE IMMEDIATELY. SO IF YOU RELEASE OIL BY THIS PRESIDENT, WITHOUT ANY REASON FROM THE SPR, I CAN ASSURE YOU OIL PRICES WILL JUMP UP.
02:22:03	Gheit, Fadel	JUST IN THIS MARKET, IT MOVES UP ON GOOD NEWS OR BAD NEWS, WHEN, WHEN, WHEN -- WHEN REBELS GET -- KIDNAP OIL WORKERS IN NIGERIA, OIL PRICE FWOSS UP.
02:22:21	Green, Gene	GETTING KIDNAPPED IN THE OFFSHORE RIGS. I UNDERSTAND IT IS VOLATILE BUT THAT WAS DISCUSSION FROM FOLKS THAT ACTUALLY COME FROM THE OIL PATCH WHO SAID, WHAT WOULD WE DO IF JUST THE PRESIDENT MADE THIS DETERMINATION, THAT OKAY, OVER THE NEXT MONTHS, WE'RE GOING TO START RELEASING IT? WE'RE NOT GOING TO TELL YOU WHEN WITH YOU IT WOULD HAPPEN. I HOPE IT WOULDN'T SIGNIFY THAT WE'RE PREPARING TO ATTACK ANYBODY. THANK YOU MR. CHAIRMAN.
02:22:47	Stupak, Bart	THANK YOU MR. GREEN.
02:22:50	Stupak, Bart	QUESTIONS, PLEASE.
02:22:51	Burgess, Michael	THANK YOU, MR. CHAIRMAN.
02:22:54	Burgess, Michael	MR. MASTERS, I WANT TO THANK YOU AND COMMEND YOU FOR PUTTING MANY ARGUMENTS IN TERMS OF MEDICAL TERMINOLOGY, MAKES IT EASIER FOR ME TO UNDERSTAND THE TUMOR VERSUS THE BUBBLE, EXCISE THE TUMOR, TREAT THE UNDERLYING OBESITY BUT YOU GOT TO TAKE CARE OF THE HEART ATTACK NOW. ON THE ISSUE OF THE LONGER TERM, ON THIS -- THE SUPPLY DEMAND, I THINK MR. GATE YOU MENTIONED IT AS WELL. IS IT FAIR TO SAY THAT MARKET FUNDAMENTALS INCLUDE FACTS ABOUT THE CURRENT SUPPLY AND FUTURE SUPPLY AND DEMAND. YOU MENTIONED THAT AS FAR AS THE BRAZILIAN FIELD WAS CONCERNED.
02:23:33	Gheit, Fadel	YES.
02:23:40	Burgess, Michael	BUT DID WE -- DID WE, DID WE INVITE SPECULATION BY FAILING TO TAKE MEASURES THAT WOULD RESULT IN INCREASED DOMESTIC SUPPLY?
02:23:48	Gheit, Fadel	YES.
02:23:51	Burgess, Michael	AGAIN, THIS NEEDS TO BE A TWO-PRONGED APPROACH, THAT OF THE POSITION LIMIT FOR THE IMMEDIATE EFFECT, THE IMMEDIATE BENEFICIAL EFFECT IT WOULD HAVE, AS WELL AS THE -- ALL OF THE OTHER METHODS THAT HAVE BEEN OUTLINED AS FAR AS INCREASING DOMESTIC PRODUCTION, IS THAT CORRECT?
02:24:06	Gheit, Fadel	YES.
02:24:09	Burgess, Michael	AND IS THERE ANY REASON TO PROCEED WITH ONLY THE POSITION LIMITS CURRENTLY AND IGNORE THE INCREASED SUPPLY ACTIVITIES THAT WE KNOW WE WILL SURELY HAVE TO UNDERTAKE WITHIN EIGHT TO TEN YEARS TIME?
02:24:25	Gheit, Fadel	THAT'S NOT GOING TO GET THE RESULTS THAT WE ARE HOPING FOR. IT HAS TO BE FULL-COURT PRESS. IT HAS TO BE A COMBINED NEAR TERM AND LONG-TERM STRATEGY AND WE JUST CANNOT STOP AND GO. IT HAS TO BE A LONG-TERM STRATEGY THAT WILL BE IMMOMENTED OVER A LONG-TERM, A PERIOD OF TIME. BUT IMMEDIATELY WE HAVE TO DO WHAT IS POSSIBLE TO BURST THE BUBBLE.
02:24:50	Burgess, Michael	I APPRECIATE YOU SAYING THAT, BECAUSE I FIRMLY BELIEVE THAT AN ALL HANDS ON DECK PHILOSOPHY IS REALLY WHAT IS REQUIRED HERE. AND SO OFTEN WE SEEM TO BE FIGHTING OURSELVES UP HERE, THIS IS A REFRESHING EXCHANGE THIS MORNING OR THIS AFTERNOON AND I REALLY APPRECIATE EVERYONE'S PARTICIPATION. YOU KNOW, THERE'S ANOTHER COMMITTEE THAT MEETS JUST ACROSS THE HALL THAT TENDS TO BE PERHAPS A LITTLE MORE FLAMBOYANT IF ATTRACTING THE PRESS COVERAGE. THEY PROPERTY IN ALL OF THE OIL COMPANY EXECUTIVES. IS IT SAFE TO SAY WE MOVED BEYOND THE POINT WHERE WE VILLELYIFY THE OIL COMPANY EXECUTIVES.
02:25:28	Gheit, Fadel	I'VE BEEN IN THE BUSINESS ALMOST 30 YEARS, I CAN TELL YOU THE OIL COMPANIES GET BLAYED FOR SOMETHING THEY HAVE ABSOLUTELY NO CONTROL OVER. THE PRICE TAKERS, THEY DON'T HAVE ANY -- IT IS NOT A BRAND NAME. THEY ARE, BASICALLY IN THE MARKET EVERY DAY, WHETHER OIL PRICES ARE $10 OR PRICED AT $140. $130 AND $140 OIL CREATES A HUGE PROFIT THAT THE EVERYONE IS BLAMING THE OIL COMPANIES FOR THE BUBBLE. AND THE FACT OF THE MATTER IS, BELIEVE IT OR NOT, THE LARGE INTEGRATED OIL COMPANIES HAD BEEN DOWN FOR THE YEAR, DESPITE $140 OIL, SO, SHAREHOLDERS WAS THE LARGE INTEGRATED COMPANIES ARE NOT HAPPY AT ALL, WITH THE $140 OIL.
02:26:20	Burgess, Michael	DOES ANYONE ON THE PANEL DISAGREE WITH THAT PHILOSOPHICALLY? OKAY. IS THERE ANYONE ON THE PANEL THAT BELIEVES -- CREATING A SITUATION WHERE WE TAX OUR DOMESTIC OIL COMPANYS TO A GREATER DEGREE WILL RESULT IN MORE ENERGY BEING AVAILABLE OR AT LOWER PRICE TO THE CONSUMER? CAN ANYONE ENVISION A SCENARIO WHERE THAT WOULD WORK? WE HEAR DISCUSSION OF LEGISLATION THAT IS GOING TO BE BEFORE THE CONGRESS BEFORE THE END OF THE YEAR, WHERE WE WILL INCREASE THE TAXES ON OUR DOMESTIC OIL PROURS, THE IDEA BEING THAT WE WILL NOW, BY DOING THAT WILL LOWER THE PRICE TO THE CONSUMER AND INCREASE THE AMOUNT OF SUPPLY, DOES ANYBODY BELIEVE IN A RATIONAL WORLD THAT WILL WORK?
02:27:05	Gheit, Fadel	IT IS TOTALLY, TOTALLY IRRATIONAL.
02:27:07	Burgess, Michael	OKAY. WELL, I APPRECIATE YOUR CANDOR. AND MR. CARRIAGE. MR. CHAIRMAN, WE'LL REVISIT THAT. IN THE INTEREST OF TIME, I'M YIELDING BACK THE BALANCE OF MY TIME.
02:27:22	Stupak, Bart	QUESTIONS?
02:27:29	Stupak, Bart	MR. -- THANK YOU MR. CLARME. THAT CONCLUDES THE QUESTIONS, I WANT TO THANK YOU FOR COMING. THE IMPORTANT TESTIMONY AND HAS HELPED US OUT QUITE A BIT.
02:27:39	Burgess, Michael	MR. CLARME. IF THERE ARE QUESTIONS THAT COME UP.
02:27:43	Stupak, Bart	AND AS ALWAYS WE'LL SUBMIT THEM IN WRITING. WE USUALLY KEEP THE RECORD OPEN FOR 30 DAYS AFTER THE HEARING TO ALLOW OPPORTUNITY. I THANK YOU ALL FOR YOUR EXPERTISE. THANK YOU.
02:28:42	Stupak, Bart	I'LL CALL OUR SECOND PANEL OF WITNESSES, COME FORWARD. ONTHE SECOND PANEL, WE HAVE MR. DOUG SEELAND PRESIDENT OF NORTHWEST AIRLINES. AND THE CEO OF THE CONNECTICUT PETROLEUM ASSOCIATION AND FOR THE THIRD INTRODUCTION, I'LL YIELD TO MIKE ROSS OF ARKANSAS TO INTRODUCE MR. WILLIAMS. MR. ROSS, WOULD YOU LIKE TO INTRODUCE MR. WILLIAMS, PLEASE?
02:29:12	Ross, Michael "Mike" A.	AGAIN, MR. CHAIRMAN, THANK YOU, MEMBER OF THE FULL COMMITTEE, NOT THIS SUB COMMITTEE, I APPRECIATE YOU LETTING ME SIT IN AND I APPRECIATE YOU LETTING US SELECT ONE OF OUR WITNESSES TODAY. MY PROJECTIONS ARE CORRECT, I'M ON THE ENERGY AND HEALTH SUB COMMITTEES, I THINK SOMETIME AROUND 2029 I'LL BE ABLE TO CHAIR ONE OF THESE AND WILL RETURN THE FAVOR AT THAT TIME. I WOULD LIKE TO THANK MY FELLOW ARKANSAS CITIZEN, FOR COMING TO TESTIFY TODAY ABOUT HIS EXTENSIVE EXPERIENCES WITH RISING PRICES. HE'S HE'S THE CHAIRMAN OF MAVERICK WHICH OPENS THE LARGEST FLATBED TRUCK FLEET IN THE UNITED STATES. IN ADDITION HE'S SERVED AS BOTH CHAIRMAN OF THE ARKANSAS TRUCKING ASSOCIATION AND THE AMERICAN TRUCKING ASSOCIATION, STEVE IS ALSO AN EXECUTIVE COMMITTEE OF THE AMERICAN TRANSPORTATION RESEARCH INSTITUTE AND THE TRANSPORTATION RESEARCH BOARD OF THE NATIONAL ACADEMICS OF SCIENCE. MR. CHAIRMAN, I THINK IT IS IMPORTANT THAT WE HAVE STEVE ON THE PANEL TODAY, BECAUSE WE FOR THE TRUCKING BUSINESSES, THAT ARE GOING OUT OF BUSINESS BECAUSE OF THESE HIGH DIESEL PRICES. WE ALSO ALL KNOW THAT, IT DIRECTLY RELATES TO THE RECESSION WE'RE IN BECAUSE WE'RE ALL PAYING MORE FOR PRODUCTS. IF YOU THINK ABOUT IT, JUST ABOUT EVERYTHING YOU BUY ENDS UP ON THE SHELF BY THE WAY OF A, OF A TRUCK THAT IS TYPICALLY RUNNING ON DIESEL. SO MR. CHAIRMAN, THANK YOU FOR YOUR INTEREST IN THISISH. THANK YOU FOR THE HEARING TODAY. AND THANK YOU FOR INCLUDING, AN ARKANSASIAN WHO HAS NATIONWIDE INTEREST IN THE TRUCKING INDUSTRY.
02:31:01	Stupak, Bart	AND THE SUB COMMITTEE CHAIR, I THINK YOU HAVE TO TAKE THAT UP WITH MR. DINGO HE'LL RUN THE THE ECONOMYITY THEN.
02:31:14	Stupak, Bart	PLEASE BE ADVISED THAT THE WITNESSES HAVE RIGHT TO BE ADVISED BY COUNCIL. DO ANY WISH TO BE ADVISED BY COUNCIL. PLEASE RISE AND TAKE THE OATH. [SWORN]
02:31:35	Stupak, Bart	LET THE RECORD REFLECT THE WITNESSES REPLIED IN THE AFFIRMATIVE, YOU'RE UNDER OATH. WE'LL START WITH YOU, FOR THE OPENING STATEMENT. WE HAVE FIVE MINUTES AT ASIDE, IF YOU HAVE A LONGER STATEMENT, FOR INCLUSION IN THE RECORD.
02:31:53	Steenland, Douglas	CHAIRMAN, STUPAK AND RANKING MEMBERS, I THANK YOU FOR THE OPPORTUNITY TO APPEAR TODAY. I DO SO WEARING TWO HATS, ONE AS CHAIRMAN OF THE AIR TRANSPORTATION ASSOCIATION AND THE ASSOCIATION OF U.S. AIRLINES AND THE OTHER AS PRESIDENT AND CEO OF NORTHWEST, HAVING LISTENED TO THE EXPERTS ON THE ORIGINAL PANEL, IT WAS A VERY THOUGHTFUL DISCUSSION, AS AN INDUSTRY, WE SUPPORT THEIR RECOMMENDATIONS AND WE WOULD URGE THE CONGRESS TO ADOPT THEM. RATHER THAN TO REPEAT WHAT THEY JUST WENT THROUGH, I THINK IT WOULD BE MORE HELPFUL TO FOCUS ON THE REAL IMPACT THAT THIS INCREDIBLE INCREASE THIS THE PRICE OF OIL HAS HAD ON THE AIRLINE INDUSTRY. SPECIFICALLY, OIL IS NOW 40% OF THE TOTAL COSTS OF THE AIRLINE INDUSTRY. FOR U.S. CARRIERS, FROM 2007 TO 2008, THE OIL BILL HAS GONE FROM 41 BILLION DOLLARS PER YEAR TO $61 BILLION PER YEAR. A $20 BILLION INCREASE. FOR NORTHWEST ALONE, IN ONE YEAR, OUR FUEL COSTS HAVE GONE UP BY $2 BILLION. THE U.S. AIRLINE INDUSTRY IS FORECASTING A LOSS IN EXCESS OF $10 BILLION. IN THIS INSTANCE, IN THIS INSTANCE THE CHALLENGE IS NOT SO MUCH, IS AS MUCH THE SPEED WITH WHICH THIS INCREASE HAS OCCURRED AS THE MAGNITUDE. IF YOU LOOK BACK OVER THE YEARS FRRKS 2005 TO 2007. OIL WENT FROM $26 TO $72 A BARREL. WHILE THOSE PRICE INCREASES WERE DIFFICULT, GIVEN THE TIME PERIOD OAF WHICH THEY OCCURRED, THEY WERE BY AND LARGE MANAGEABLE. 2007 WITH OIL IN THE $70 RANGE, THE AIRLINE INDUSTRY WAS PROFITABLE. WE WOULD LOVE IF 200 CAME CLOSE TO LOOKING WHAT 2007 WAS LIKE. HOWEVER, WHEN THE PRICE OF OIL OVER THE COURSE OF TEN MONTHS GOES UP $70 A BARREL, AND EVERY DOLLAR IS IN NORTHWEST INSTANCE, COSTS US $40 MILLION A YEAR OF ADDITIONAL COST, WHEN OIL GOES UP $11 IN ONE DAY, WHEN YOU HAVE VOLATILITY IN ANY GIVEN DAY OF WELL IN EXCESS OF $3, YOU REALLY ARE LIVING IN AN ENTIRELY DIFFERENT WORLD. THE QUEBS CONSEQUENCES OF THIS ARE DRAMATIC. SO FAR THIS YEAR, EIGHT AIRLINES HAVE SHUT DOWN. TWO HAVE FILED FOR CHAPTER 11. ALL OF THE MAJOR NETWORK CARRIERS ARE IN THE PROCESS OF SIGNIFICANTLY SHRINKING THEIR CASS. NORTHWEST IT'LL BE 8.5 TO 29.5% SMALLER THIS YEAR THAN LAST YEAR. OTHER AIRLINES ARE SHRINKING. WHY IS THIS HAPPENING? IT IS HAPPENING BECAUSE WE HAVE NO CHOICE BUT TO TAKE THESE PRICE INCREASES AND PASS THEM THROUGH TO OUR CUSTOMERS. WE'VE BEEN THROUGH SIGNIFICANT RESTRUCTURING AND NORTHWEST CASE, WE TOOK 2.5 BILLION A YEAR OUT OF COST STRUCTURE AND THROUGH INCREASING OUR REVENUE. SO THEREFORE, WE NEED TO PASS THESE PRICES THROUGH. AND AS THEY GET PASSED THROUGH, THE CONSUMER IS GOING TO BE TRAVELING LESS. BECAUSE AS PRICES GO UP, JUST LIKE WITH ANYTHING IN SOCIETY, DEMAND WILL GO DOWN. AND WHEN DEMAND COMES DOWN, WE NEED TO ADJUST THE SUPPLY TO REFLECT WHAT THAT DEMAND IS. SO UNFORTUNATELY, COMMUNITIES WILL LOSE SERVICE, THE LEVEL OF SERVICE WILL GO DOWN, INCONVENIENCE WILL INCREASE. AND ADJUSTMENTS IN MOMENT WILL HAVE TO TAKE PLACE. GIVEN THE IMPACT, THE INCREDIBLE IMPACT OF AIR SERVICE ON THE ECONOMY, THAT IS THEN GOING TO RIPPLE THROUGH AND HAVE A EFFECT ON OTHER BUSINESS THAT IS WE DO. FOR THOSE REASONS, WE URGE THAT THE CONGRESS ACT QUICKLY, AGREE ON A BIPARTISAN MEASURE THAT CAN ADDRESS THE ISSUES THAT GOT RAISED BY THE, BY THE PANEL THIS MORNING, AND WE WOULD HOPE THAT WE WOULD BE ABLE TO SEE LEGISLATION PASSED BY THE CONGRESS BY THE AUGUST RECESS.
02:35:52	Stupak, Bart	THANK YOU. MR. WILLIAMS YOUR OPENING STATEMENT? I'M GOING TO ASK YOU TO PULL THE MIC UP THERE A BIT.
02:36:05	Williams, Steven	MR. CHAIRMAN AND MEMBERS OF THE SUBCOMMITTEE, MY WIFE AND I STARTED OUR COMPANY WITH ONE TRUCK. WE PLOY NEARLY 2000 PEOPLE TODAY AND OPERATE OVER 1500 TRACTORS AND OUR COMPANY SERVES THE STEAL -- STEEL BUILDING MATERIALS AND FLAT GLASS INDUSTRIES. IN 2007, DESPITE REVENUES OF A MILLION 11, WE LOST FOR THE FIRST YEAR IN THE COMPANY. OUR FUEL BILLS INCREASED BETWEEN 2006 AND 2007, WE WERE NOT ABLE TO RECOVER THIS DUE TO THE ECONOMY AND LOSS OF PRICING POWER. THE PRICE OF DIESEL FUEL ON JUNE 16TH WAS $4.62 AND THIS PRICE REMAINS CONSTANT FOR THE REST OF THE YEAR, THE FUEL WILL INCREASE BY $49 MILLION THIS YEAR, FROM 66 MILLION TO 115 MILLION, A 72% INCREASE. THE FUEL CRISIS HAVING A DRAMATIC EFFECT ON THE TRUCKING COMMUNITY AT LARGE, TOM AL PRECK, AN ANALYSTS WITH STEVEN ZINC WROTE IN JUNE, THESE WOULD FORCE 14 TO 16% OF THE TRUCKING INDUSTRY TO CEASE OPERATIONS. NOT ONLY WILL THIS FURTHER REDUCE CAPACITY IN THE MARKET. IT'LL MAKE THE USED TRUCK MARKET WORSE. FOR YOU SEE THERE ARE FEW DOMESTIC BUYERS FOR USED COMMITMENT. WE AS A COMPANY HAVE SOLD OUR EQUIPMENT TO RUSSIA AND VIETNAM. BUT THE OVERALL XI IS OF GREATER CONCERN. OTHERS CAN MAKE MORE ON THIS DEBATE BUT FOR EXAMPLE, PROFESSOR GREENBURGER TESTIFIED BEFORE THE U.S. SENATE ECONOMY, HE SAID THE INDUSTRY IS DOM THATED BY SPECULATE, WE HEARD ABOUT THAT TODAY. AT MINIMUM ENERGY TRADER STATEMENTS CONTINUE TO BE SELF-FULFILLING PROPHECIES. THEY DON'T REFLECT THE FUNDAMENTALS OF SUPPLY AND DEMAND. TIM EVANS AN ENERGY ANALYSTS AT CITIGROUP WROTE ON JUNE 5TH THAT IF DEMAND GROWTH IS FALTERING AND SUPPLY IS RISING JUST AS ECONOMICS WOULD PREDICT SHOULD OCCUR IN THE FACE OF RISING PRICES, WHY ARE PRICES REMAINING SO PERSISTENTLY STRONG. END OF HIS QUOTE. I WOULD LIKE TO THANK THE SUB COMMITTEES INTEREST IN EXAMINING WAYS TO REGULATE THIS ACTIVITY. AND TO WHATEVER TROO COMMODITY PRICES ARE AFFECTED BY SPECULATION IN THE MARKET. WE MUST ELIMINATE THIS BURDEN ON THE ECONOMY AND WE MUST DO SO QUICKLY. I WOULD EMPHASIZE QUICKLY. I BELIEVE OUR EFFORTS MUST BE PART OF A COMPREHENSIVE STRATEGY AND THIS STRATEGY MUST FIRST FOCUS ON THE FACTORS DRIVING ON THE COST OF DIESEL. THE STRATEGY MUST INCLUDE REGULATORY POLICIES THAT ALLOW OUR INDUSTRY TO BE BETTER STEWARDS OF THE RESOURCES WE HAVE. A STRATEGY THAT COULD REDUCE OUR DEPENDENCE ON FOREIGN OIL. WE NEED AN OVERALL STRATEGY THAT CAN IMPROVE EFFICIENCY AND SAFETY WHILE SERVING THE U.S. ECONOMY THAT WILL BE TWICE ITS CURRENT SIZE WITHIN THE NEXT 20 YEARS. TRUCKS WILL CONTINUE TO DELIVER MOST OF THE NATION'S GOODS, HOWEVER, IN ORDER TO MEET THE DEMANDS OF OUR SOCIETY, 87% MORE TRUCKS WILL BE REQUIRED THAN ARE CURRENTLY ON OUR HIGHWAYS. THIS WILL FURTHER INCREASE CONGESTION, AIR POLLUTION AND WILL BURN MORE FUEL. IN ORDER TO MEET THIS CHALLENGE, WE MUST CONSIDER POLICIES TO LIMIT VEHICLE SPEEDS, CREATE INCENTIVES FOR LIMITING, FOR ADOPTING ENVIRONMENTAL AND SAFETY TECHNOLOGIES. AND INVEST IN HIGHWAY SYSTEM CAPACITY TO REDUCE HIGHWAY CONGESTION AND SAFELY IMPROVE VEHICLE PRODUCTIVITY. WE MUST ENCOURAGE THE USE OF RENEWABLE FUELS BUT AS A PART OF A SENSIBLE NATIONAL FUEL STANDARD. WE MUST ASSESS THE TRUE VALUE PROPOSITION OF RENEWABLE FUELS, SUCH AS ETHANOL AND BIODIESEL. WE MUST UNDERSTAND THE PRODUCTION AND CONDITIONS OF THEIR USE. INCREASED DOMESTIC EXPLORATION AND INCREASED REFINING CAPACITY MUST BE ENCOURAGED WHEN THEY CAN BE EXPANDED IN ENVIRONMENTALLY RESPONSIBLE FASHION. I HAVE VOLUNTARILY INVESTED TENS OF MILLIONS OF DOLLARS IN VIRTUALLY ALL THE FUEL SAFETY TECHNOLOGIES IN THE MARKET TODAY BUT IT IS GOING TO TAKE MUCH MORE THAN THAT. IT REQUIRES A GLOBALLY COMPETITIVE REGULATORY CHANGE TO ENABLE THE CONTINUED EVOLUTION OF THE TRUCKING INDUSTRY TO SAFELY MEET OUR NATION'S NEEDS. I HAVE AUTHORED A COMPREHENSIVE STRATEGY TO MEET THE CHALLENGES WE FACE AND THIS DOCUMENT HAS BEEN PART OF THIS ATTACHMENT. THIS DOCUMENT DETAILS SPECIFIC ACTION ITEMS AND ENTITLED SUSTAINABILITY INITIATIVE. I APPRECIATE THIS OPPORTUNITY, MR. CHAIRMAN, TO OFFER MY INSIGHT INTO MEASURES THAT THIS NATION SHOULD TAKE TO HELP ADDRESS THE HIGH COST OF PETROLEUM. THANK YOU.
02:41:00	Stupak, Bart	THANK YOU, MR. WILLIAMS.
02:41:05	Stupak, Bart	YOUR OPENING STATEMENT.
02:41:08	Guilford, Eugene	IN MARCH OF 2004, OUR ASSOCIATION WENT TO FIRST DISTRICT CONGRESSMAN JOHN LARSEN, WITH CONCERNS ABOUT THE BEHAVIOR OF THE COMMODITY MARKETS. THE DAILY VOLATILITY WE WERE SEEING AND ASKED IF CONGRESSMAN COULDN'T WORK TO INITIATE A GOVERNMENT ACCOUNTABILITY OFFICE STUDY OF THE AUTHORITIES OF THE COMMAND DIS FUTURES TRADING COMMISSION TO DETERMINE IF THE CFTC HAD SUFFICIENT AUTHORITY TO PROPERLY OVERSEE ALL ENERGY DOM FLEX TRADING ACTIVITIES. OUR MEMBERS ON BEHALF OF OUR CONSUMERS IN OUR STATE ARE PHYSICAL TRADERS. WE OFFER THE OPPORTUNITY FOR THEM TO LOCK IN HEATING PRICES FOR THE WINTER, SO THIS IS AN EXTREMELY IMPORTANT ISSUE TO US AND OUR CUSTOMERS. WHEN THAT STUDY'S RESULTS CAME BACK, WE LEARNED THAT THE C.F.T.C. HAD MULTIPLE LOOPHOLES WITHOUT REASON, NOT THE LEAST OF WHICH WE KNOW TO BE THE ENRON LOOPHOLE AND THE SWAT LOOPHOLE AND FOREIGN TRADES. BLINDING THE CFTC TO HALF OF IT IN THE ENERGY COMPLEX. WE LEARNED THEY DID NOT HAVE SUFFICIENT AUTHORITY AND RESOURCES. WHILE CONGRESS RECENTLY CLOSED THE ENRON LOOPHOLE, WE KNOW WE HAVE MORE TO DO. THE EVIDENCE OF THE NEED OF THIS INQUIRY HERE AND ELSEWHERE IN CONGRESS IS CLEAR. ON BLACK FRIDAY, JUNE 6,, 2008, CRUDE HIT A HIGH OF 29.12 A BARREL. AND GASOLINE HIT NEW HIGHS OF $3.98 AND $3.58. THE CRUDE TRADED ON THE NYMEX EQUALED 12 BILLION BARRELS AND DID 14 DAYS OF U.S. CONSUMPTION. FOUR BILLION BARRELS OF HEATING OIL WERE TRID TRADED. EQUALING HALF OF THE HEATING OIL IN ONE YEAR. WALL STREET'S JUSTIFICATION FOR SENDING THIS ENERGY BILL TO AMERICA POINTED TO A, ONE MORGAN STANLEY ANALYSTS VIEW OF CRUDE OIL GOING TO 150 A BARREL BY THE 4TH OF JULY AFTER DECLINING IN THE PREVIOUS WEEK, B, EUROPEAN CENTRAL BANKS WORRYING ABOUT INFLATION AND RATES DRIVING TOWN THE DOLLAR AND HEDGE FUNDS AND COMMODITIES AND C THE ISRAELI TRANSPORTATION MINISTER THREATENING IRAN OVER ITS NUCLEAR PROGRAM. NOT EVEN WHEN HURRICANES KATRINA AND RITA ACTUALLY DID DAMAGE TO AMERICA'S ENERGY PRODUCTION DID PRICES RISE AS MUCH AS ON JUNE 6,, 2008. NOTHING THAT HAPPENED THAT FRIDAY HAD BEARING ON ENERGY PRODUCTION, IT WAS SPECULATION DRIVEN FEAR ON THE PART OF WALL STREET. THE AVERAGE SERVICE STATION OPERATOR WE REPRESENT HAD TO SPEND $8,000 FOR A LOAD OF GASOLINE IN 2002, AND NOW FOR THAT SAME LOAD OF GASOLINE SPENDS OVER $25,000. THE AVERAGE 2.5 MILLION GALLON HEATING DISTRIBUTOR HAD TO CAPITALIZE OVER A MILLION DOLLARS, FOR THE HE'D HEATING SEASON IN 1998 AND 1999 FOR WHOLESALE HEATING OIL WILL NEED TO CAPITALIZE OVER 9 MILLION DOLLARS IN THE COMING HEATING SEASON, MORE THAN THREE TIMES THE NET VALUE OF THE COMPANY TELEPHONE. IN ONE MONTH, THIS LOCAL HEATING RETAILER WILL SELL 20 CENTS OF ITS ANNUAL VOLUME, REQUIRING $2 MILLION IN CREDIT JUST TO BUY WHOLESALE HEATING OIL FOR THE GENERAL PUBLIC IN ONE MONTH. WHEN A WORLD OF TRILLIONS AND BILLIONS THAT MAY NOT SEEM LIKE A LOT BUT MULTI-FLY THAT TIMES THE RETAILERS, THAT'S REAL MONEY AND WE'RE A SMALL STATE. MULTIPLY THAT TIME THE OIL HEAT STATES, IT IS TONS OF CAPITAL. NEEDED TO GO THROUGH THE SEASON. WE FACE THE SAME CREDIT CRUNCH, WHEN IT COMES TO ATTEMPT TO BORROW THE STAGGERING SUMS, JUST TO BE ABLE TO SERVE OUR CUSTOMERS. THESE CRUSHING PRICES HURT NOT JUST THE LEAST WELL OFF OF OUR CUSTOMERS, WHOSE LOW INCOME ENERGY BENEFIT PAID FOR LAST YEAR'S ENERGY NEEDS AND WILL PAY FOR LESS AN QUARTER OF NEXT YEAR'S ENERGY NEEDS. BASED ON WHERE PRICES ARE HEADED. THESE PROVIDESES NOW DRIVE THE MIDDLE CLASS TO TAKE LONGER TO PAY BILLS AS THEY RESORT TO CREDIT CARDS JUST TO GET BY. MORE THAN A QUARTER OF OUR CUSTOMERS WERE OVER 45 DAYS LATE IN PAYING THEIR ENERGY BILLS AT THE END OF THE RECENT HEATING SEASON, IN SHORT AMERICA WAS DROWNING IN A SEA OF RED INK COPING WITH ENERGY COSTS FROM AIRLINES TO TRUCKING COMPANIES AND LARGE AND SMALL BUSINESSES, AGRICULTURE AND EVERY DAY AMERICANS. WE ADVOCATE STRONG AND IMMEDIATE ACTIONS AND SWAP TRADER LOOPHOLES IN CURRENT LAW. WE ADVOCATE FOR STRONG AND IMMEDIATE ACTIONS TO REDUCE THE ROLE OF ENERGY COMPLEX INVESTORS AS THEY'RE NOW BUYING MORE PAPER CONTRACTS AND PHYSICAL ENERGY AND WHERE THEY CANNOT ACCEPT PHYSICAL ENERGY ITSELF THEIR ROLE SHOULD BE SEVER SEVERELY RESTRAINED. YOU'LL HEAR ACTIONS WILL POTENTIALLY DRIVE PRICES HIGHER. WE'RE ALL DROWNING IN THE LIQUIDITY, PUMPED INTO THE SYSTEM. FROM HEDGE AND INDEX FUNDS AND DERIVATIVE TRADERS. WE HAD NO LIQUIDITY ISSUES IN 2002 WITH A MARKET THAT OPERATED WITH GREATER CERTAINTY AND STABILITY. IT WAS THE POINT OF PRICE DISCOVERY THAT IT WAS MEANT TO BE. WITH SIGNIFICANTLY LESS PARTICIPATION FROM NONCOMMERCIAL FINANCIAL INTERESTS. THIS DEBATE IS ABOUT THE LIQUIDITY WE LACK IN BEING ABLE TO SERVE OUR CUSTOMERS AND OUR CUSTOMERS LACK OF LIQUIDITY IN BEING ABLE TO AFFORD THE ENERGY THEY NEED TO RUN THEIR BUSINESSES, TO USE TRANSPORTATION AND TO HEAT AND COOL THEIR HOMES. OUR MEMBERS ARE TAKING STRONG ADVANTAGE OF ALTERNATIVE FUEL OPPORTUNITIES, THAT THIS CONGRESS HAS PROVIDED THEM, MORE THAN 30% ARE INVOLVED IN BIOFUELS, OUR STATE HAS BEEN THE FIRST IN THE NATION TO CREATE A FUEL OIL CONSERVATION FUND, AND BOARD. SPECIFICALLY, DESIGNED TO REDUCE THE AMOUNT OF FUEL OIL THAT IS USED IN OUR STATE, BY UPGRADING OLD INEFFICIENT HEATING SYSTEMS, TO NEW HIGH EFFICIENCY HEATING SYSTEMS BY TAKING ADVANTAGE OF SOME OF OUR INDUSTRY'S BEST TECHNOLOGY. WE'RE TRYING THE BEST WE CAN ON THE DEMAND SIDE. FINALLY, THIS ISN'T JUST ABOUT OIL AND GASOLINE. THE DECEMBER 2008 NYMEX CONTRACT FOR NATURAL GAS INCREASED SINCE JANUARY, A HARBINGER OF HIGHER ELECTRICITY AND HEATING COSTS. IN THE COMING MONTHS, JUST AROUND THE CORNER, PRICES HAVE ALREADY STARTED TO RISE FOR END USER CONSUMER OF NATURAL GAS, THERE DOESN'T APPEAR TO BE ANYWHERE ANYONE CAN GO TO ESCAPE HIGH ENERGY COSTS IN AMERICA. THANK YOU, I'LL BE HAPPY TO ANSWER QUESTIONS THAT YOU MIGHT HAVE.
02:47:42	Stupak, Bart	THANK YOU AND THANK YOU ALL FOR YOUR TESTIMONY. MR. STEINLAND AT THE OUTSET, YOUR TESTIMONY CONTAINS A NUMBER OF HELPFUL RECOMMENDATIONS TO REDUCE EXCESSIVE SPECULATION IN ENERGY MARKETS SUCH AS CLOSING THEM, THE ENRON LOOPHOLE, OR CLOSING THE SWAPS AND THE EXEMPTIONS THAT HAVE CONTRIBUTED TO RUN UP OIL SPECULATION. IS DEALING WITH THE IMPACTS OF MARKET SPECULATION THE HIGHEST PRIORITY FOR THE AIRLINE INDUSTRY?
02:48:13	Steenland, Douglas	I THINK THE HIGHEST PRIORITY IS TO -- TO LOOK TO TACKLE THE OVERALL PRICE OF FUEL, GIVEN THE FACT IT IS NOW 40% OF OUR, OUR OF OUR TOTAL COST PIE. AND WHEN WE LOOK AT T WE THINK THE SOLUTION IS, IS A MULTI-FACETED SOLUTION, IN THAT CLEARLY ADDRESSING THE FINANCIAL SPECULATION, I THINK IS THE MOST IMMEDIATE THING THE CONGRESS CAN DO. I THINK WE ALSO RECOGNIZE AS THE FIRST PANEL DID, THERE ARE LONGER TERM ISSUES THAT HAVE TO BE ADDRESSED IN THE FORM OF SUPPLY, THE FORM OF CONSERVATION, AND WE'RE INVESTING 6 BILLION IN TERMS OF A NEW FLEET THAT WOULD BE MORE COST EFFECTIVE. WHEN YOU THINK ABOUT THE KIND OF IMPACT ON THE PRICE OF CRUDE THAT THE REMEDIES FOR FINANCIAL SPECULATION WERE TALKED ABOUT, WHETHER IT IS 30 OR 40 A BARREL, OR $60 OR $70 A BARREL, THE FACT THOSE CHANGES, THOSE PRICE IMPACTS ARE TRUE, ARE LIKELY TO HAPPEN VERY QUICKLY. THAT'S WHAT BRINGS US TO THE POINT OF RECOMMENDING THAT THE CONGRESS ACT E LACKITY, AND TACKLE THESE REFORMS PROMPTLY, PRIOR TO THE AUGUST RECESS, SO WE CAN SEE THE PRICE ROLL BACKS HAPPENING NOW, BECAUSE THE IMPACT IS TRULY DEVASTATING.
02:49:27	Stupak, Bart	WHAT PERCENTAGE OF INCREASE IN YOUR OIL COSTS CAN YOU, ACTUALLY PUT ON A TICKET, PASS ON TO CONSUMERS? YOU PASS IT ALL ON, PART OF IT ON?
02:49:36	Steenland, Douglas	CLEARLY, WE HAVE NOT PASSED ALL OF IT ON. PARTLY, IT IS DUE TO THE SPEED WITH WHICH, WITH WHICH THIS HAS OCCURRED. IF YOU JUST LOOK AT OUR FIRST QUARTER FOR EXAMPLE, OUR FUEL BILL FOR OPERATING BASICALLY THE SAME SIZE AIRLINE WENT UP BY ABOUT $450 MILLION AND OUR PRETAX PROFIT, THIS YEAR, WE HAD A PRETAX LOSS, VERSUS THE PRETAX PROFIT, THAT GAP WAS ABOUT, WE DETERIORATED TO THE TUNE OF ABOUT $250 MILLION, OUR ENERGY COSTS WENT UP $450 MILLION, OUR PROFITABILITY SWUNG BY $250 MILLION.
02:50:12	Stupak, Bart	SO, WHAT WOULD YOU SAY, TO THE CONSUMER OUT THERE? HOW MUCH HAS THEIR IRLE TICKET GONE UP BECAUSE OF OIL PRICES? 20%, 30%. 40%?
02:50:24	Steenland, Douglas	IT DEPENDS ON WHERE YOU ARE, IN SOME PLACES IT HAS GONE UP 20 OR 30%. OTHERS NOT GONE UP VERY MUCH AT ALL. THE UNFORTUNATE REALITY IS IT HASN'T GONE UP ENOUGH TO OFFSET THE PRICE INCREASES THAT WE'VE SEEN SO FAR. IF YOU TAKE THE PRICES THAT ARE NOW IN THE MARKET AND YOU SIMPLY CARRY THEM FORWARD, BECAUSE WE HAVE BEEN SORT OF CHASING THIS PRICE GOING UP, IF YOU ASSUME THESE ARE THE PRICES FOR THE NEXT 12 MONTHS, THE NEXT 24 MONTHS, THE PRICE OF AIR TRAVEL IS GOING TO MATERIALLY INCREASE OVER WHAT IT IS TODAY.
02:50:58	Stupak, Bart	WHAT HAPPENS IF IT STAYS AT $140 A BARREL? IS THERE GOING TO BE AN AIRLINE INDUSTRY?
02:51:04	Steenland, Douglas	I THINK THERE'LL BE ONE, BUT IT'LL BE SMALLER THAN WHAT IT IS TODAY, SIMPLY BECAUSE THE NUMBER OF CONSUMERS THAT CAN AFFORD WHAT AIR TRAVEL IS GOING TO BE AT THOSE RATES IS GOING TO BE LESS AND THE INDUSTRY WILL HAVE TO RIGHT SIZE ITSELF TO DEAL WITH THE FEWER NUMBER OF PEOPLE THAT WILL BE TRAVELING.
02:51:20	Stupak, Bart	THANK YOU.
02:51:24	Stupak, Bart	MR. WILLIAMS, WITH DIESEL $5 A GALLON, HOW MANY FIRMS HAVE GONE UNDER? WHAT IS THE OUTLOOK FOR YOUR INDUSTRY?
02:51:34	Williams, Steven	THE -- THE ONLY TIME THIS OCCURRED PRIOR TO, WHETHER THERE HAS BEEN A SIGNIFICANT LOSS IN CAPACITY, WAS IN 2001. BUT -- ALL OF THE RECORD WOULD INDICATE THAT WE'RE -- WE'RE OTHER -- WE'RE IN UNCHARTED WATERS HERE. THE ACCELERATION OF FAILURES IS INCREASING. AGAIN THE 10 TO 15%, WOULD REPRESENT, 150, 200,000 INDIVIDUAL UNITS. THE -- THE NUMBERS ARE HARD TO GET, BECAUSE I THINK IT IS IMPORTANT, FOR PEOPLE TO UNDERSTAND WHEN THEY THINK OF THE TRUCKING INDUSTRY, I MEAN, 91% OF WHAT WE WOULD CALL THE CAPACITY THAT EXISTS IN THE MARKET, IS MADE UP OF CARRIERS THAT HAVE 20 TRUCKS OR LESS. THE REMAINING 9% MAY BE REPRESENTS 60% OF THE OVERALL CAPACITY, IT IS A VERY FRAGMENTED COMMUNITY. A LOT OF THOSE PEOPLE THAT HAVE GONE OUT OF BUSINESS, THEY DON'T SEND OUT PRESS RELEASES AND SAY, WE QUIT, YOU'LL FIND THE TRUCK IN A YARD OR ON A USED TRUCK LOT. IT TAKES A WHILE FOR THAT DATA TO COME IN. IT IS GOING TO GET MUCH WORSE, THERE'S AN AWFUL LOT OF MID SIZE CARRIERS THAT ARE, THAT HAVE FAILED DUE TO CREDIT EXTENSIONS AND THE FACT THERE'S SUCH A TREMENDOUS AMOUNT OF USED EQUIPMENT SETTING WITH NO BUYERS IN THIS MARKET. THAT -- THAT SITUATION WILL GET MUCH WORSE BEFORE IT GETS BETTER.
02:53:05	Stupak, Bart	LET ME ASK YOU WHAT I ASKED MR. STEINLAND. ON THE -- HOW MUCH CAN YOU ACTUALLY PASS THROUGH TO THE CUSTOMER. YOU SAID YOU HAUL STEEL, HOW MUCH OF THAT COST? DO YOU PASS THE WHOLE INCREASED COST TO YOUR COMPANY YOU'RE MAULING THE STEEL NO?
02:53:25	Williams, Steven	IN 2007, OUR FUEL PRICES INCREASED IN THE ECONOMY WAS EXTREMELY SOFT, WE WEREN'T ABLE TO PASS THAT ON. THEREFORE, WE HAD AGAIN OUR FIRST NET LOSS.
02:53:33	Stupak, Bart	LOSS.
02:53:35	Williams, Steven	AND THIS YEAR, THINGS ARE BETTER, WE'RE ACTUALLY HOLDING OUR OWN, WE'RE ALMOST BACK TO BREAK EVEN WHICH I NEVER THOUGHT WOULD LOOK GOOD. BUT IT IS SIMPLY A RIO -- THE ECONOMY IS NOT RECOVERED, IN THOSE, SEGMENT THAT IS WE SERVE. IT IS SIMPLY BECAUSE OF CAPACITY THAT HAS GONE OUT OF THE MARKET. THEREFORE WE HAVE OUR PRICING POWER AGAIN. I THINK -- I THINK I CAN RESPOND TO THAT A LITTLE EASIER BY SAYING FOR EXAMPLE THE STEEL INDUSTRY WHOSE PRICES OF THEIR STEEL ARE UP THREE FOLD THIS YEAR AND ARE DOING WELL STILL CANNOT MOVE THEIR PRODUCT TO MARKET BECAUSE OF CAPACITY, THE BUILDING MATERIAL SIDE OF THE BUSINESS, BUSINESS IS OFF 30% COMPARED TO LAST YEAR AND LAST YEAR WAS A HORRIBLE YEAR. THEY CAN'T MOVE WHAT LITTLE SHIPMENTS THEY HAVE. THEY HAVE TROUBLE MOVING IT AND CERTAINLY THE FLAT GLASS INDUSTRY IS SUFFERING FROM A LOT OF THE SAME ISSUES. SO, THE IMPACT IN THE SUPPLY DEMAND EQUATION FOR US, SIMPLY IS BEING DRIVEN BY A LOT OF CAPACITY, LEAVING THE MARKET AND THOSE PEOPLE THAT REMAIN WILL BE ABLE TO RAISE THEIR PRICES TO RECOVER THAT FUEL.
02:54:43	Stupak, Bart	A LOT OF OUR CONSTITUENTS ARE SAYING WHEN I GO TO A STORE, IT COSTS MORE, THAT'S THE TRANSPORTATION COSTS. IS THAT A FAIR STATEMENT?
02:54:53	Williams, Steven	WE'RE IN -- AND CONTINUE TO TRY TO PASS OUR COSTS ON. IT'LL VARY FROM MARKET SEGMENT TO MARKET SEGMENT, DEPENDING ON THE CAPACITY THAT STILL IS IN THE MARKETPLACE. CUSTOMERS, AGAIN, IN 2007, IT WAS THE SAME SITUATION, IN 2007 DID NOT KEEP US AS WHOLE AS THEY CURRENTLY ARE. YOU'LL SEE THE PRICE AND THE PRODUCTS WILL HAVE TO INCREASE AS THE COST OF FUEL CONTINUES TO RISE, NO DOUBT ABOUT IT.
02:55:24	Stupak, Bart	DO YOU RECOMMEND CONGRESS TAKE A LOOK AT HEATING OIL FUTURES CONTRACTS AND YOU SUGGEST HEATING OIL SKYROCKET BECAUSE OF SUPPLY AND DEMAND BECAUSE DIESEL PRICES ARE HEDGED AGAINST HEATING OIL. EVEN THOUGH THEY EXCEED HEATING OIL VOLUMES, HAVE YOU RAISED THIS WITH NYMEX OR THE FUTURES TRADING COMMISSION?
02:55:47	Guilford, Eugene	YES, WE DISCUSSED SEPARATING THEM, BUT WE'RE NOT CERTAIN WHAT THE CONSEQUENCES OF THAT WILL BE YET.
02:55:54	Stupak, Bart	WHAT WAS -- WERE THEY RECEPTIVE TO THIS IDEA?
02:55:56	Guilford, Eugene	SURE, I THINK THEY'RE RECEPTIVE TO LISTENING TO THE IDEA ABOUT WHETHER OR NOT THE CONTRACT SHOULD BE SEPARATED BUT WE ALL UNDERSTAND THE RESPONSIBILITY TO MAKE SURE WE UNDERSTAND WHAT THE POTENTIAL CONSEQUENCES OF DOING THAT WOULD BE BEFORE IT IS ACTUALLY DONE. SO PS IMPORTANT TO US THAT WE UNDERSTAND THAT FIRST. I THINK ONE OF THE EXAMPLES OF WHY IT IS IMPORTANT TO CONTINUE THAT DISCUSSION IS WHAT HAPPENED ON UNION 4, THE HEATING OIL CONTRACT WENT UP -- JUNE 6,, THE MOST SEVERE HEAT WAIVE IN THE UNITED STATES. IT WASN'T DRIVEN BY DEMAND, NOT PEOPLE USING HEATING DURING THAT PERIOD OF TIME. IT SEEMS REASONABLE WE WOULD WANT TO EXPLORE THAT.
02:56:35	Stupak, Bart	THANK YOU. MR. WHITFIELD, QUESTIONS?
02:56:39	Whitfield, Edward	THANK YOU MR. CHAIRMAN. MR. STEENLAND, DID I UNDERSTAND YOU TO SAY THAT YOUR JET FOUL COSTS INCREASED BY $420 MILLION IN ONE YEAR?
02:56:51	Steenland, Douglas	IF THAT WERE ONLY TRUE. WE'RE EXPECTING OUR 2008 COSTS TO BE ALMOST $2 BILLION THAN 2007 COSTS.
02:57:00	Whitfield, Edward	THIS IS FUEL COSTS ONLY?
02:57:01	Steenland, Douglas	FUEL COSTS. FOR THE U.S. CARRIERS, WE EXPECT COSTS TO BE OVER $20 BILLION HIGHER IN 2008 VERSUS 2007.
02:57:11	Whitfield, Edward	OBVIOUSLY YOU CAN'T OPERATE VERY LONG WITH FUEL COST THAT IS HIGH. I WOULD ASSUME. WHAT STEPS CAN YOU TAKE AS CEO TO -- -- UNDER THE CURRENT MARKET CONDITIONS TO ADDRESS THIS ISSUE? WHAT ARE THE STEPS AVAILABLE TO YOU?
02:57:27	Steenland, Douglas	WELL, THE MOST IMMEDIATE EFFECT IS TO LOOK TO TRY TO PASS THESE COSTS THROUGH TO THE CUSTOMER. THAT'S NOT ALWAYS EFFECTIVE, BECAUSE CUSTOMERS, PASSENGERS DON'T ALWAYS HAVE TO FLY AND WHEN THE PRICE OF AIR TRAVEL GETS TOO HIGH, SOME ELECT TO DRIVE IN LOU THERE OF, TAKE ALTERNATIVE VACATIONS, BUSINESS TRAVELERS MAY ELECT TO STAY HOME. THERE'S, THERE'S CLEARLY AN ELASTICITY HERE. OTHER OPTIONS ARE TO LOOK TO RECOGNIZE DEMAND WILL GO DOWN AND FLY LESS.
02:57:58	Whitfield, Edward	SO CAN YOU CANCEL ROUTES ON YOUR OWN? DO YOU HAVE TO GET REGULATORY APPROVAL TO DO THAT?
02:58:04	Steenland, Douglas	YOU CAN DO IT ON YOUR OWN. EVERY MAJOR U.S. AIRLINE HAS ANNOUNCED SIGNIFICANT CAPACITY REDUCTIONS IN THE FOURTH QUARTER WHEN YOU MEASURE THE SIZE THIS YEAR AND THE SIZE LAST YEAR.
02:58:15	Whitfield, Edward	MR. WILLIAMS, IN THE TRUCKING BUSINESS, WHAT PERCENT OF YOUR BUSINESS WOULD BE UNDER CONTRACT AND WHAT WOULD BE, WHAT I WOULD REFER TO AS A SPOT MARKET?
02:58:28	Williams, Steven	IT -- UNLIKE THE -- THE PREDEREGULATION MARKET WHERE IT WAS MORE REGULATED, MOST OF EVERYONE STILL OPERATES UNDER, WHAT WOULD BE CHARACTERIZED A A CONTRACT MARKET BUT IT IS MORE, IT IS HANDLED, THE DISCIPLINE IS MORE, IT FUNCTIONS AS A SPOT MARKET.
02:58:43	Whitfield, Edward	SO UNDER THE TERMS OF THE CONTRACT, YOU CANNOT READILY PASS ON THOSE FUEL COSTS TO THE, TO THE SHIPPER.
02:58:52	Williams, Steven	NO, THERE'S TRADITIONALLY A FUEL SURCHARGE, MECHANISM THAT'S A FUNCTION OF THAT. UNFORTUNATELY THE WAY THE PRICE OF FUEL MOVED IT NEVER KEPT US WHOLE. WE'RE ALWAYS BEHIND. AND CERTAINLY THE BURDEN FOR OPERATORS IS A BURDEN AS WELL.
02:59:13	Whitfield, Edward	YOU SAID YOUR COST INCREASED BY $12 MILLION.
02:59:18	Williams, Steven	THAT WAS BETWEEN 2006 AND 2007, WEE PROJECTING $50 MILLION THIS YEAR.
02:59:24	Whitfield, Edward	WELL, I KNOW THAT BOTH OF YOU DO SUPPORT THE PROPOSALS TO REFORM THAT THE FIRST PANEL HAD SUGGEST. AND WE CERTAINLY ARE LOOKING INTO THAT, I WANT TO APPROACH THIS FROM A LITTLE DIFFERENT PERSPECTIVE, MR. WILLIAMS, AND THAT RELATES TO, I WAS READING AN ARTICLE RECENTLY THAT SAID THE U.S. HAS THE STIFFEST DIESEL EMISSION STANDARDS IN THE WORLD. AND THAT TRUCKS MEETING THOSE STANDARDS, GET ON AVERAGE 3 MILES AN HOUR. NOW IS THAT ACCURATE, OR IS THAT -- OVERSTATED?
03:00:03	Williams, Steven	I WOULD SAY THAT HAS BEEN MISSTATED. THE FACT ARE THAT, AS WE HAVE MET THE MOST RECENT APA MANDATES, I BELIEVE IN 2002 AND 2007, WE HAVE A 2010 COMING IN THE FIRST TWO SERIES OF THOSE, WE ACTUALLY LOST FUEL EFFICIENCY AS WE WERE ACHIEVING THE GOAL OF IMPROVING THE EXHAUST EMMISSIONS. WE SUPPORT THAT. AND WE HAVE TRIED TO INVEST IN TECHNOLOGIES AND SYSTEMS THAT WOULD ENABLE US TO HAVE AN OFFSET. WE CERTAINLY WANT TO CONTINUE TO SUPPORT THAT BUT THE REALITY IS, THAT WE HAVE ACTUALLY ENDED UP RUNNING THE SAME MILES, BURNED MORE FUEL, TO ACCOMPLISH, THE CLEANER ENVIRONMENT.
03:00:42	Whitfield, Edward	SO YOU'RE --
03:00:45	Williams, Steven	THE NUMBER IS MORE, MY FLEET AVERAGES 6.7 MILES PER GALLON. THE THREE WOULD BE -- THERE'S ACTUALLY UNFORTUNATELY EQUIPMENT THAT STILL REMAINS IN THE FLEET THAT I WOULD MAYBE BE OPERATING AT THAT LEVEL.
03:00:58	Whitfield, Edward	I THINK IT IS IMPORTANT WE TALK ABOUT THIS BECAUSE WE DO ALL WANT TO PROTECT THE ENVIRONMENT, BUT WE ALSO KNOW THAT IN DOING THAT, IT IS RAISING OUR COSTS AND IT IS GOING TO RAISE FUEL COSTS AND I -- I READ THIS QUOTE IN AN ARTICLE COMPARING TRUCKING AND CHINA AND TRUCKING IN AMERICA AND IT TALKS ABOUT IN CHINA, A $23,000 DIESEL ENGINE WOULD MEET EURO 2002 REQUIREMENTS. THE EURO REQUIREMENTS GO UP TO 4 AND THEN IN THE U.S., THE TRUCKS THAT WE BUY ARE IN THE NAKED OF $46 TO 50,000 FOR A DIESEL ENGINE, YET WE'RE GETTING 6 MILES AN HOUR -- SIX MILES TO THE GALLON. I APPRECIATED YOUR COMMENTS ON THAT, BECAUSE I DIDN'T KNOW WHAT THE ACTUAL FACTS WERE.
03:01:48	Williams, Steven	WELL, I THINK IT IS IMPORTANT THAT WE'RE MISSING, IT IS INTERESTING LISTENING TO THE PREVIOUS PANELS REMARKS IN THE FACT IT HAS TAKEN $5 DIESEL AND $4 GAS TO TALK ABOUT THIS, YET THIS ARE SO MANY THINGS THAT WE HAVE WITHIN OUR CONTROL REGARDLESS OF THE PRICE, THAT WILL ALLOW OUR FLEETS TO BE MUCH MORE FISHANT. BUT WE CHOSEN TO NOT, TO NOT ACCEPT THE CHALLENGE OF TRYING TO MAKE THE REGULATORY CHANGES THAT NEED TO BE MADE. THE U.S. HAS THE MOST RESTRICTIVE POLICIES OF ANY INDUSTRIALIZED NATION ON THE PLANET. IT'LL BE INTERESTING TO SEE IF WE'RE SO ENAMORED WITH DOING THE RIGHT THING IF PRICES FORTUNATELY WERE TO COME DOWN? BECAUSE I THINK FRANKLY THERE'S MOTIVATION TO DO A LOT OF THESE THINGS, WE NEED TO BE DOING REGARDLESS OF THE PRICE, GOING TO THE POINT ABOUT EMISSIONS AND THEN JUST OVERALL SUSTAINABILITY OF OUR INDUSTRY. I THINK WE NEED TO SPEND A LOT OF TIME TALKING ABOUT THOSE AS WELL.
03:02:46	Whitfield, Edward	WELL, IT CERTAINLY AFFECTS OUR COMPETITIVENESS WITH OTHER COUNTRIES LIKE CHINA AND SO FORTH. THANK YOU.
03:02:58	Stupak, Bart	BL CHAIRMAN, DO YOU HAVE QUESTIONS?
03:02:59	>>	WELCOME.
03:03:01	>>	WELCOME TO OUR PANEL.
03:03:04	>>	YOU'VE SERVED THE COUNTRY WELL, I'M GRATEFUL TO YOU.
03:03:08	>>	I UNDERSTAND NORTHWEST AIRLINES USES A FUTURE MARKET TO HEDGE ITS FUEL COSTS. HOWEVER, I BELIEVE YOU'RE NOT COVERING A MARKET THAT HAS BEEN THROWN SO FAR OUT OF BALANCE BY SPECULATION AND SPECULATORS THAT PRICES NO LONGER REFLECT THE TRUE FUNDAMENTALS OF SUPPLY AND DEMAND, IS THAT STATEMENT CORRECT?
03:03:27	Steenland, Douglas	WE BELIEVE THAT'S TRUE, MR. CHAIRMAN.
03:03:30	>>	WHAT IS THE FACT -- PRACTICAL EFFECT OF THAT?
03:03:33	Steenland, Douglas	PRACTICAL EFFECT IS -- AS WE'VE SEEN, IS AN INCREASE OVER THE LAST TEN MONTHS IN THE PRICE OF OIL, OF $70 A BARREL WHICH PUTS OIL IN, IN A -- IN COMPLETELY UNCHARTED WATERS AND THREATENS THE INTEGRITY OF THE AIRLINE INDUSTRY AS WE KNOW IT.
03:03:50	>>	BUT IN YOUR VIEW AS THE MARKET NO LONGER EXISTS AS A PROP HEDGING TOOL FOR YOU AND THE REST OF THE INDUSTRY PAU IT HAS GOTTEN SO DISTORTED, IS THAT CORRECT?
03:04:02	Steenland, Douglas	I THINK IT IS THE FINANCIAL PLAYERS IN THE MARKET THAT ARE, WHETHER IT IS VIDEO BARRELS OR PAPER BARRELS, WHATEVER YOU CALL THEM, THAT'S CLEARLY HAD THE -- THE SORT OF THE RETRO ROCKET IMPACT ONLY THE PRICE OF FUEL. WE HEDGE TODAY WHERE WE CAN. IT IS NOT VERY ATTRACTIVE AT THESE PRICES. BUT WHEN YOU YOU CONSIDER WHAT THE, WHAT THE WHAT THE RUNUP IS, YOU KNOW, WE LOOK TO BASICALLY BUY SOME INSURANCE POLICY AGAINST PRICES GOING HIGHER. WE DO THAT AND THE MARKET IS AVAILABLE TO DO THAT. IT IS AN IMPORTANT PIECE OF -- OF -- OF THE ENERGY PROCESS. BUT IT IS CLEARLY THE FINANCIAL PLAYERS THAT HAVE -- HAD THE IMPACT THAT, THAT WE HAVE ALL -- WE HAVE ALL TESTIFIED TO AND TALKED ABOUT THIS MORNING.
03:04:47	>>	PAGE EIGHT OF YOUR TESTIMONY, YOU GAVE US SUPERB RECOMMENDATIONS. TO TRY AND SUMMARIZE, WOULD RAISING MARKET, MARKET MARGIN REQUIREMENTS ON SPECULATORS HAVE A POSITIVE EFFECT ON THE MARKET?
03:05:00	Steenland, Douglas	WE BELIEVE IT WOULD.
03:05:01	>>	TO WHAT DEGREE?
03:05:03	>>	AND WHY?
03:05:06	Steenland, Douglas	WELL, I THINK BY -- BY TAKING SOME OF THE HE HAVE RAJ OUT OF THE BUSINESS, SO, YOU KNOW, YOU'RE NOT JUST PUTTING UP 5% BUT 50% OR 33%, DEPENDING ON THE RECOMMENDATIONS? THAT MAY MEAN THERE WILL BE LESS LIQUIDITY, LESS PRESSURE COMING IN ON THE FUTURES MARKET, WHICH CLEARLY, YOU KNOW AS THAT PRICE CONTINUES TO MOVE UP, IT, IT -- IT AFFECTS THE SPOT PRICE THAT WE HAVE TO PAY.
03:05:32	Williams, Steven	MR. WILLIAMS AND -- MR. GUILFORD. . . THE TRUCKING INDUSTRY OPERATES ON A NARROW MARGINS THAT THE NOTION THAT THERE IS SIGNIFICANT HEDGING IN OUR MARKETPLACE WOULD BE WRONG.
03:06:48	>>	WHAT YOU ARE SAYING IS YOU CAN'T TAKE IF EDGE OF THE ADVANTAGE OF IT?
03:06:59	Williams, Steven	THIS IS A RISKY.
03:07:08	>>	WOULD CLOSING THE LONDON LOOPHOLE AND THE ENRON A LOOPHOLE HAVE A POSITIVE AFFECT ON THE MARKET?
03:07:15	Steenland, Douglas	WE BELIEVE IT WOULD BY CREATING GREATER TRANSPARENCY AND CLEAR OPPORTUNITIES.
03:07:26	>>	HOW IMPORTANT IS IT FOR THE CONGRESS TO GET ITS ARMS AROUND PROBLEM OF EXCESSIVE SPECULATION IN THE ENERGY MARKETS?
03:07:46	Steenland, Douglas	THINK BACK TO WHAT OUR PANELISTS SAID THIS MORNING. I THINK THEY RANGE FROM $30 A BARREL TO $70 AND APPAREL TO WHAT THEY THOUGHT THE IMPACT WOULD BE OF THE SERIES OF RECOMMENDATIONS THAT ON THE TABLE.
03:08:04	Guilford, Eugene	WITH THE 8 BILLION GALLONS OF HEATING OIL USED IN THIS COUNTRY EACH YEAR AND WE'VE SEEN AN INCREASE OF $2 A GALLON IN THE LAST 12 MONTHS AND HAS COST CONSUMERS ADDITIONALLY $16 BILLION.
03:08:22	>>	YOU ARE TELLING ME IS A MATTER OF URGENT CONCERN.
03:08:38	Williams, Steven	THE IMPLICATIONS FOR THE MANAGERS AND THE FUNDS THEMSELVES THE, THERE ARE MANY PEOPLE IN AMERICA DRIVING CARS AND TRUCKS THAT ARE HAVING DIFFICULTY GETTING TO WORK TODAY. I WOULD SAY THAT WE NEED TO MOVE EXTREMELY FAST.
03:08:56	>>	THE CLOCK HAS RUN OUT ON ME. WHAT ARE THE CONSEQUENCES IF THE CONGRESS DOESN'T ACT?
03:09:09	Steenland, Douglas	I THINK THE CONSEQUENCES IS THAT WE WILL BE SPENDING MORE FOR OIL THAN WE OTHERWISE NEED TO.
03:09:17	Williams, Steven	I WOULD AGREE AND THERE WOULD BE A TREMENDOUS LOSS OF CAPACITY IN THE COMMERCIAL FLEET AND THOSE THAT WOULD REMAIN HAVE A VERY DIFFICULT TIME MEETING SHIPPING DEMANDS.
03:09:30	Guilford, Eugene	IT IS OIL, NATURAL GAS, PEOPLE'S ABILITY TO GET BACK AND FORCE FROM WORK. THE TWO AND A HALF BILLION THAT CONGRESS SPENT IS GOING TO HAVE TO BE MORE LIKE 7 BILLION JUST TO KEEP UP THE ENERGY ASSISTANCE.
03:10:02	Barton, Joe	I HAVE BEEN TOLD THAT SOUTHWEST AIRLINES HAS HAD ON EVANISHAN ADVANTAGE BECAUSE THEY WERE ABLE TO GET A FEEL COST ADVANTAGE AND THAT THEY CONTINUED TO MAINTAIN THAT ADVANTAGE. -- THEY WERE ABLE TO GET A FUEL COST ADVANTAGE.
03:10:35	Steenland, Douglas	THEY MADE THEIR FUEL WAGERED BACK IN THE 2002-2003 TIMEFRAME COULD DO THEY HAVE TO ENJOYED A SIGNIFICANT ADVANTAGE OVER THE REST OF US.
03:10:47	Barton, Joe	I UNDERSTAND THAT THE FIRST TIME THEY DID IT THE REST OF THE INDUSTRY DID NOT SEE A NEED TO. IT WAS NOT A FACT THAT THEY COULD NOT. THIS TIME AROUND IN SPEAKING WITH THE CEO OF AMERICAN AIRLINES, HE IS HEADQUARTERED WITHIN SHOUTING DISTRICT OF MY DISTRICT. HE INDICATED THAT AMERICA HAS DOWN SAID HEDGING BUT THEY DON'T HAVE THE FINANCIAL ABILITY TO DO AS MUCH AS SOUTHWEST CONTINUES TO DO. WOULD YOU AGREE THE SOUTHWEST HAS BECAUSE OF THEIR CASH FLOW POSITION AND THEIR PROFITABILITY HAS HAD A GREATER ABILITY TO HEDGE THAN SOME OTHER
03:11:29	>>
03:11:43	Steenland, Douglas	THEY WERE ABLE TO MAKE A WAGER. THE REST OF US COULD NOT BECAUSE OF OUR RISKS CONFESS SOMETIMES YOU'RE RIGHT AND SOMETIMES YOU ARE WRONG. YOU HAVE A PARTY ON THE OTHER SIDE MAKING A COUNTER OFFER. MAKING A HEDGE ON THE OTHER SIDE DOES NOT MEAN THAT THE BILL WILL BE LOWER BUT IN THIS INSTANCE SOUTHWEST WAS THE BENEFICIARY OF A VERY BRAVE AND SMART MOVE.
03:12:12	Barton, Joe	THE LAST QUESTION ON THE SUBJECT, I ALWAYS ASSUMED THAT SOUTHWEST WAS SLAIN IN THE FUTURES MARKET BUT I WAS TOLD THIS MORNING THAT THEY WERE ACTUALLY BUYING OPTIONS ON THE CHICAGO COMMODITIES MARKETS, DO YOU KNOW IF THAT IS TRUE?
03:12:32	Steenland, Douglas	I DON'T. ONE CAN BUY OPTIONS GOING FORWARD. ONE CAN PUT IN PLACE CALLERS SO YOU HAVE THE PROTECTION. -- COLLARS SO YOU HAVE PROTECTION. THERE ARE MANY WAYS THAT YOU CAN HEDGE. YOU CAN DO WITH BY LOOKING TO ACTUALLY BUY THE PRODUCT GOING FORWARD AND LOCKING IN YOUR PRICE OR APPROACHING IT'S MORE LIKE AN INSURANCE POLICY.
03:13:11	Barton, Joe	ARE YOU TESTIFYING ON BEHALF OF THE AIRLINE INDUSTRY OR JUST FOR NORTHWEST?
03:13:17	Steenland, Douglas	I AM WEARING BOTH HATS.
03:13:20	Barton, Joe	DOES THE AIRLINE INDUSTRY SUPPORT THE TWO-TIERED SYSTEM WHERE MARKET PARTICIPANTS TO ACTUALLY TAKE PHYSICAL POSSESSION ARE WILLING TO PROVIDE PHYSICAL DELIVERY WOULD PLAY UNDER A DIFFERENT SET OF RULES THAN THOSE THAT ARE IN IT FOR THE FINANCIAL OPPORTUNITIES?
03:13:44	Steenland, Douglas	I DON'T THINK WE HAVE SPECIFICALLY ADDRESS THAT. I BELIEVE THAT WE WOULD SUPPORT LIMITS TO PEOPLE PLAYING ON THE VIDEO SIDE.
03:14:01	Barton, Joe	IT IS NOT GASOLINE, IT IS THE SOUL, IT IS A FORM OF CARE SING.
03:14:04	Steenland, Douglas	THAT IS CORRECT. -- IT IS NOT GASOLINE, IT IS THE DEISLE, IT IS A FORM OF KEROSENE AND.
03:14:25	Steenland, Douglas	WE HAVE TO REFINE THE CRUDE INTO JET AND THIS HAS BEEN AT HISTORIC HIGHS. WHEN PEOPLE TALK ABOUT OIL AT $130 A BARREL YOU HAVE TO ADD $30 TO BE REFINING INTO JET. WE'RE TALKING ABOUT $160 A BARREL FOR JET FUEL.
03:14:47	Barton, Joe	IF I WERE TO GO TO A MUNICIPAL AIRPORT IN MY CONGRESSIONAL DISTRICT, WHAT IS THE APPROXIMATE PRICE THEY WOULD PAY FOR A GALLON OF AVIATION FUEL?
03:14:59	Steenland, Douglas	WELL NO. THE $4.
03:15:04	Barton, Joe	IT IS SIMILAR TO GASOLINE.
03:15:12	Steenland, Douglas	FOR SOMETIMES COMES OUT OF THE REPORTS HAS TO BE HIGHER BECAUSE IT HAS TAXES.
03:15:22	Barton, Joe	MR. WILLIAMS, YOU OWN A TRUCKING FIRM.
03:15:24	Barton, Joe	YES, SIR. THOSE IN YOUR INDUSTRY GOING OUT OF BUSINESS, THERE ARE APPROXIMATELY 1000 TRUCKING COMPANIES A MONTH, IS IS BECAUSE THEY DON'T HAVE THE CAPITALIZATION TO PAY THE HIGHER FUEL COSTS?
03:15:45	Williams, Steven	YES, SIR. THERE IS A LARGE SEGMENT OF THE COMMUNITY THAT HAS BEEN TAX FLOW OPERATORS. THEY HAVE A GREAT DEAL OF DIFFICULTY IN THESE MARKETS. LARGER COMPANIES ALSO HAVE A PROBLEM.
03:16:12	Barton, Joe	TO COMPANIES THAT ARE MEIJI TO STAY IN BUSINESS, THEY CAN PASS THROUGH SOME OF THEIR INCREASE?
03:16:28	Williams, Steven	DRIVEN BY A LACK OF CAPACITY AND COMPETITION WITHIN THE MARKETPLACE, YES.
03:16:38	Barton, Joe	IN THE AIRLINE INDUSTRY, IT IS BECAUSE OF COMPETITIVE PRESSURE OF THE LOW-COST CARRIERS LIKE SOUTHWEST YOU ARE NOT ABLE TO PASS ON THE FUEL COSTS. "THERE IS EXCESS CAPACITY IN THE MARKET AND GIVEN THAT IT IS DIFFICULT TO PASS CRISIS THROUGH.
03:17:01	Stupak, Bart	DID SOUTHWEST INCREASE THEIR FARES?
03:17:11	Steenland, Douglas	THEY HAVE NOT BEEN A IMMUNE FROM THIS AND ON OCCASION THEY HAVE BEEN TAKING FARE INCREASES. THE FREQUENCY OF THE FARE INCREASES HAS BEEN LESS THAN WHAT WE HAVE BEEN DOING.
03:17:34	Inslee, Jay	NOTED DIFFERENT TYPES OF FUELS IN AIRCRAFT. A COMMERCIAL FLIGHT USING A NON OIL-BASED FUEL, IT WAS IN A PLANE BUILT IN MY DISTRICT. IT USED A BOTTLEUSED A BIOFUEL DESIGN. THERE COULD BE SOME GOOD THINGS HAPPENING THERE. THIS IS A FAIRLY UNUSUAL SITUATION I THINK WHERE THREE MAJOR PILLARS OF OUR ECONOMY THAT YOU REPRESENT, AND ASK THE GOVERNMENT TO DO SOMETHING IN A MARKET, IN A CAPITALISTIC MARKET. THAT IS KIND OF UNUSUAL. WE URGED THE ADMINISTRATION TO INTERVENE, THE VICE PRESIDENT SAID THAT WE DON'T UNDERSTAND HOW CAPITAL MARKETS WORK. YOU ARE SUGGESTING THAT THE GOVERNMENT HAS TO DO SOMETHING TO ALLOW THE CAPITAL MARKETS TO RELEASE FUNCTION. AT ITS BASE LEVEL CAN YOU EXPLAIN TO US WHY IN THIS PARTICULAR CIRCUMSTANCE YOU BELIEVE THAT IS NECESSARY? WHY SHOULD GOVERNMENT HAVE TO DO ANYTHING HERE THAT THE MARKETS CANNOT FIGURE OUT THEMSELVES?
03:19:08	Guilford, Eugene	OUR CONGRESSMAN IS JOHN LARSEN AND HE IS FOND OF SENDING ME CLIPS FROM THE CONGRESSIONAL RECORD WHERE HE GIVES FULL STATEMENTS WHERE HE IS ADDRESSING THESE ISSUES WHERE HE REFERS TO HIS REPUBLICAN CONSTITUENTS WHO ARE TALKING TO HIM ABOUT THE PROBLEMS OF THESE MARKETS AND HE IS TALKING ABOUT US. THERE ARE PROBABLY NO GREATER DEFENDERS OF THE FREE ENTERPRISE SYSTEM THAN WE ARE. WHERE WE SEE WHAT SHOULD BE FREE AND OPEN TRANSPARENT MARKETS THAT ARE AS FREE OF MANY VIOLATION AS IS HUMANLY POSSIBLE TO CREATE, WE HAVE NO CHOICE BUT TO ASK THE GOVERNMENT TO STEP IN WHEN IT IS NOT DEALING WITH REALITY. THIS IS AT A POINT OF PRICE DISCOVERY AS OPPOSED TO WHAT IT IS AT.
03:20:11	Steenland, Douglas	THE COMMODITIES MARKET IS A REGULATED MARKET AND THERE HAVE BEEN CHANGES IN IT THAT HAVE GONE OVER TIME AND WHEN 13 TIMES WHAT THE PHYSICAL SIDE ISFISCAL SIDE IS, IT CREATES THE NECESSITY TO REVISIT WHETHER THE REGULATORY STRUCTURE IN PLACE IS A CORPORATE AND WHETHER CHANGES SHOULD BE MADE TO GET US BACK INTO A MODE THAT BETTER REFLECTS SUPPLY AND DEMAND.
03:20:52	Inslee, Jay	I ASSUME YOU DON'T BELIEVE THAT THIS IS A FOOL'S ERRAND. I CINDI DON'T LEAVE THAT THESE WILL DRIVE THESE INVESTMENTS OFFSHORE. -- I ASSUME THAT THIS WILL NOT DRIVE THESE INVESTMENTS OFFSHORE.
03:21:11	Steenland, Douglas	I THINK THE PALACE THIS MORNING ADDRESSED THAT ISSUE AND THEY ARE FAR MORE EXPERT AT THIS. -- I THINK THAT ANALYSTS THIS MORNING ADDRESSED THAT ISSUE. THE AIRLINE INDUSTRY HAS THIS VIEW THAT THESE ARE CORPORATE AND ASNECESSARY STEPS TO TAKE.
03:21:48	Walden, Greg	I WANT TO TALK ABOUT THE ISSUE OF TRUCKING. THE TRUCKS THAT YOU HAVE IT THAT YOU ARE SELLING, IS PART OF THAT BECAUSE OF THE NEW REQUIREMENTS ON FUEL AND ENGINES HERE IN THE UNITED STATES THAT THEY CANNOT BE REUSED HERE?
03:22:20	Williams, Steven	NO, SERVE THE MARKET IS SO POOR HERE. -- OF THE MARKET IS SO POOR HERE. THE MARKET DOES NOT EXIST BECAUSE THOSE PEOPLE ARE THE PEOPLE THAT HAVE BEEN RUN OUT OF BUSINESS AND HAVE NOT BEEN ABLE TO SURVIVE. A LOT OF THE EQUIPMENT WILL BE STOCKPILED AND YOU WILL HAVE ACRES AND ACRES OF TRUCKS IN THIS COUNTRY BEFORE IT IS OVER. WE ARE MOVING A LOT OF THAT EQUIPMENT OVERSEAS BUT IT IS NOT BECAUSE OF ANY NEW MANDATES THROUGH JOE THIS COMMITTEE -- ANY NEW MANDATES. THIS COMMITTEE IS LOOKING AT CARBON SEQUESTRATION. THE ESTIMATES ARE THAT THAT COULD SIGNIFICANTLY INCREASE THE PRICE OF FUEL. THE PRICE OF HEATING OIL, ESPECIALLY. THE PRICE OF FUEL OIL FOR YOUR JETS. THE PRICE OF GASOLINE. WHENEVER THE PRICE SIGNALED IT WOULD HAVE TO BE ABOVE TODAY'S FUEL COSTS. I'M CURIOUS WHAT WILL THOSE COST INCREASES MEAN TO YOUR INDUSTRY IF WHERE YOU ARE AT TODAY IS DEBILITATING?
03:23:50	Williams, Steven	I THINK IT IS ONE OF THE PARTS OF THIS WHOLE CONVERSATION THAT IS DISTURBING THAT TO WHATEVER DEGREE THE PRICE OF FUEL IS HIGHER BECAUSE OF SPECULATION IT IS A LIMITING FACTOR ON US RAISING OUR TAXES THAT WE NEED TO RAISE SO WE CAN INVEST IN INFRASTRUCTURE AND OFFER SOME LONG-TERM SOLUTIONS FOR OUR CITIZENS. IF IN FACT $2 IN THE PRICE OF DEISEL IS GOING TO THE BENEFIT OF THE SPECULATOR I WOULD PREFER TO SEE THIS GOING INTO A TRUST FUND SPECIFICALLY USED FOR INVESTMENTS IN HIGHWAYS AND BRIDGES TO MOVE THIS NATION'S FREIGHT.
03:24:32	Walden, Greg	I DON'T THINK THE CAP AND TRADE PROPOSAL PUTS THE MONEY INTO ROADS AND BRIDGES NECESSARILY.
03:24:38	Williams, Steven	FROM A MOBILE SOURCE I DON'T THINK THAT CAPT. TRADE IS A GOOD METHODOLOGY FOR UNTIL I SUPPORT A FUEL TAX SYSTEM AS LONG AS THAT IS USED ON INFRASTRUCTURE INVESTMENTS.
03:24:55	Walden, Greg	HOW IS THE AIRLINE INDUSTRY GOING TO BE AFFECTED UNDER THESE CAP AND TRADE PROPOSAL?
03:25:04	Steenland, Douglas	IT DEPENDS ON WHICH ONE, IF IT IS GLOBAL AND EVERYONE IN MY BE A WAY TO ADDRESS THE '04 OVERALL ISSUE. SOME OF THE POLICIES ARE BASED ON PROJECTIONS OF GROWTH. THIS MIGHT HAVE BEEN WHAT THE INDUSTRY WAS GOING TO GROW WHEN FUEL WAS AT $60 A BARREL. IF FUEL IS GOING TO BE AT $130 A GIRL THERE ARE GOING TO BE RETRACTIONS AND THAT IS GOING TO BE A CONTRIBUTION TO CARBON EMISSIONS. -- IF THE FUEL IS CALLING FOR $130BARREL GOING FOR $130 A BARREL.
03:25:50	Walden, Greg	WHEN YOUR HEATING WITH OIL AT HOME, WHAT DOES ANOTHER 50 CENTS OF FUEL DUE TO THE CONSUMER?
03:26:00	Guilford, Eugene	WE CAN DOCUMENT THROUGH RESEARCH AND WORK DONE AT THE BROOKHAVEN NATIONAL LABORATORY. IN THE LAST 25 YEARS WE HAVE MANAGED TO HAVE A SIGNIFICANT REDUCTION IN THE CONSUMER CONSUMPTION OF HEATING OIL BECAUSE OF THE INTRODUCTION OF NEW TECHNOLOGY THAT OUR INDUSTRY HAS BROUGHT IN LINE. YOU CAN TAKE A 65% FURNACE AND TURN IT INTO 85% YOU CAN CUT THE CONSUMERS CONSUMPTION FROM 1000 TO UNDER 700 GALLONS. DEPENDING ON HOW SUCH A SMALL THING WAS STRUCTURED WE CAN TELL MEET SOME OF THE STRUCTURES I HAVE SEEN. IF IT MAKES US UNCOMPETITIVE THAT WOULD BE SOMETHING VERY DETRIMENTAL TO OUR CUSTOMERS.
03:26:52	Walden, Greg	I'VE HEARD THAT SOME ESTIMATES ARE UPWARDS OF SIX TRILLION DOLLARS IN THE ECONOMY. AS I LISTENED TO THE PROBLEMS WITH EACH OF YOUR INDUSTRY TODAY AND THE IMPACT I HEAR WHETHER I MET THE GROCERY STORE OR MEETING WITH FARMERS, AND I AM TRYING TO FIGURE OUT WHEN IT COMES TO CAP AND TRADE, IT MEANS TO PAY FOR SOMETHING YOU HAVE NEVER PAID FOR SOMETHING AND THAT IS COMING OUT OF THE CONSUMER'S POCKET, RIGHT?
03:27:22	Guilford, Eugene	EXACTLY.
03:27:24	Walden, Greg	WANT THAT ADVERSELY AFFECT PEOPLE THAT YOU'RE TRYING TO SERVE?
03:27:28	Guilford, Eugene	ENORMOUSLY. THE ONLY SOLUTION WE HAVE IS TO BECOME MORE AND MORE EFFICIENT WHICH WE HAVE PROVEN WE CAN DO. WE WOULD NEED ANOTHER QUANTUM LEAP IN THAT ABILITY.
03:27:39	Steenland, Douglas	I THINK IT WOULD BE FAIR TO SAY THAT THE AIRLINE INDUSTRY HAS INVESTED TENS OF BILLIONS OF DOLLARS IN NEW EQUIPMENT. IN TERMS OF ONE SAVING IN FUEL AND TO HAVING LESS CARBON WE HAVE TAKEN A VERY POSITIVE STEP IN THAT DIRECTION AS HAS OUR COMPETITORS.
03:28:03	Walden, Greg	I DON'T DOUBT THAT. IT IS A MATTER OF WHAT THIS ADDED COST IS GOING TO DO TO INDUSTRIES AND CONSUMERS THAT ALREADY ARE PRETTY MAXED OUT.
03:28:34	Green, Gene	WITH THE IMPACT OF THE HIGH FUEL COSTS, YOU'RE THE FIRST TO GET HIT. SORT OF A CANARY IN THE MINE SHAFT BECAUSE IT WILL REVERBERATE IN EVERYTHING DELIVERED BY THE TRUCKS AND EVERYTHING ELSE. THE REST OF THE ECONOMY NEEDS TO CUSHION ITSELF BECAUSE THOSE COSTS ARE GOING UP. YOU MENTIONED THERE ARE SEVERAL FACTORS THAT AFFECTED THE OIL PRICE
03:29:24	Steenland, Douglas	WE ARE FIGURING OUT WAYS TO BRING MORE SUPPLY ONLINE WHICH WOULD BE AN APPROPRIATE POINT IN OUR OVERALL ENERGY POLICY AS WELL AS LOOKING AT ALTERNATIVE FUELS, LOOKING AT PROPER CONSERVATION METHODS. IT NEEDS TO BE A TOTAL PACKAGE AND WE NEED TO ADDRESS IT IN THAT TOTAL WAY.
03:29:47	Green, Gene	IT IS NOT A SILVER BULLET. WE NEED TO DEAL WITH THE SPECULATORS AND TWO ALTERNATIVES. HOPEFULLY THE BIOFUEL 4747. WE JUST OPENED A FACILITY IN HOUSTON THAT IS THE LARGEST REFINERY IN THE COUNTRY.
03:30:09	Steenland, Douglas	I THINK THAT IS A GOOD EXAMPLE WHERE BIOFUEL IS A MULTI GENERATIONAL TUG OF APPROACH WHERE REST POTENTIALLY THE KIND OF THINGS WE'RE TALKING ABOUT TODAY IS THE IMPACT IN 30-60 DAYS THAT SOME OF THESE OTHER EVENTS ARE LONG TERM.
03:30:39	Green, Gene	HEZBOLLAH FINANCIAL SERVICES BEEN CALLED BY THE APPROPRIATE -- HAS THE APPROPRIATE AND FINANCIAL SERVICES BEEN CALLED FOR THE CURVING TO EXCESS SPECULATION? DO YOU THINK THE FINANCIAL AUTHORITY IS ANYTHING EQUIVALENT THAT WE HAVE IN OUR CFTC.
03:31:04	Steenland, Douglas	I WOULD DEFER TO SOMEONE ELSE.
03:31:09	Green, Gene	MR. CHAIRMAN, I WOULD LIKE TO SUBMIT FOR THE RECORD. I HAVE SOMETHING PRESENTED BY CONTINENTAL AIRLINES WHICH SHOWS THE PRICE SPREAD INCREASING ON A MONTHLY BASIS AS THE PRICE OF OIL GOES UP. I HAVE NOT SEEN ANYTHING BASED ON DIESEL FUEL PRICES. TISO HAS GONE UP. DOES YOUR ASSOCIATION HAVE ANYTHING THAT HAS GONE UP? -- DIESEL FUEL HAS GONE UP? THE CRACK SPREAD FOR GETTING TO JET FUEL WAS 27.1 WHEREAS ON JUNE THE NINTH THE PRICE OF OIL WAS 1 34.4. THIS BREAD WITH UP TO 32. DO YOU HAVE ANY INFORMATION ON DIESEL, HOW IT IS GONE UP?
03:32:03	Williams, Steven	NO, SIR, BUT WE CAN MAKE INFORMATION AVAILABLE TO YOU.
03:32:08	Green, Gene	MR. CHAIRMAN, I WOULD LIKE TO SUBMIT THIS TO THE RECORD ID WILL BE SUBMITTED WITHOUT OBJECTION. -- I WOULD LIKE TO SUBMIT THIS TO THE RECORD.
03:32:20	Green, Gene	I WOULD LIKE THIS TO BE SUBMITTED WITHOUT OBJECTION.
03:32:36	Green, Gene	I KNOW THE COST OF HOME HEATING OIL HAS INCREASED, AS THE VOLATILITY IN THE SAME IN THE MARKET?
03:32:45	Guilford, Eugene	WE DON'T LOOK AT IT AT THE SAME WAY AS HEATING OIL BUT THERE SEEMS TO HAVE BEEN WITH THE CLOSURE OF A LOOPHOLE INVOLVING NATURAL GAS DERIVATIVES IN 2004 SOMEWHAT LESS VOLATILITY AND I THINK THE NEXT PANEL CAN ADDRESS THIS FOR YOU IN DETAIL.
03:33:08	Green, Gene	I THINK THERE'S BEEN LESS VOLATILITY. I WANT TO THANK YOU FOR THIS PANEL.
03:33:17	Stupak, Bart	I KNOW YOU RECEIVE A COPY OF THE REPORT, WE LOOK AT THE FIRST THREE MONTHS OF 08 COMPARED TO THE FIRST MONTHS OF LAST YEAR. THERE IS PLENTY OF SUPPLY BUT WHAT THEY ARE DOING WITH IT AFFECTS THE PRICE.
03:33:48	Melancon, Charlie	MY SON GRADUATE FROM HIGH SCHOOL WITH A YOUNG MAN HAS BEEN DRIVING TRUCKS WITH HIS FATHER FOR YEARS AND I SAW HIM THIS WEEKEND AND THEY'RE GOING TO SELL THE TRUCKS AND LOOK FOR A JOB. I UNDERSTAND. I HATE TO SEE THAT HAPPEN WHETHER IT IS SMALL OPERATIONS OR BIG OPERATIONS. I DON'T REALLY HAVE A LOT OF QUESTIONS IN THIS SECTOR BECAUSE MOST OF THE THINGS I AM CONCERNED ABOUT OUR BY THE REGULATORS. FOR EACH ONE OF YOU, FROM YOUR PERSPECTIVE HOW LONG CAN NORTHWEST OR THE INDUSTRY CONTINUE BEFORE IT BECOMES TOTALLY DEVASTATED?
03:34:38	Steenland, Douglas	FOR 8 AIRLINES IS ALREADY TOO LATE. THEY ARE LIQUIDATED AND THE THEY WERE NEVER COME BACK. TWO AIRLINES ARE IN CHAPTER 11. -- THEY ARE LIQUIDATED AND THEY WILL NEVER COME BACK. THE INDUSTRY IS IN A BIT OF A RACE WHERE WE ARE LOOKING TO PASS THROUGH THESE COSTS AS QUICKLY AS THEY CAN. AS THOSE COSTS GET PASSED THROUGH, DEMAND SHRINKS AND SO WE NEED TO TAKE CAPACITY OUT AND WE NEED TO REACH THE POINT OF EQUILIBRIUM WHERE CUSTOMERS ARE PAYING THE LEVEL OF AIR FARE THAT COMPENSATES US FOR OUR BILL AND THE INDUSTRY IS THE CORRECT SIZE TO MEET THAT DEMAND.
03:35:22	Melancon, Charlie	HAVE YOU SEEN IMMEDIATE
03:35:24	Steenland, Douglas	CERTAINLY.
03:35:26	Melancon, Charlie	DO YOU KNOW WHAT PERCENT?
03:35:36	Steenland, Douglas	WE CAN ALWAYS PUT A PASSENGER ON THE AIRPLANE BASED ON THE PRICE THAT WE'RE PREPARED TO CHARGE. PEOPLE ARE NOT PAYING WHAT THE TRUE COST IS TO PROVIDE THE SERVICE.
03:35:51	Melancon, Charlie	MR. WILLIAMS, ANY PROJECTIONS?
03:35:56	Williams, Steven	I THINK THAT CARRIERS WILL CONTINUE TO SURVIVE BUT I THINK IT IS IMPORTANT TO NOTE THAT WHEN THEY ARE AS WOUNDED AS THEY ARE THEY ARE NOT ABLE TO INVEST IN THE NEW TECHNOLOGIES THAT WILL ALLOW US TO MEET OUR FUNDAMENTAL CHALLENGE AND THAT IS TO MOVE MUCH MORE FREIGHT IN A MUCH MORE CONGESTED ENVIRONMENT. THIS IS A DISSERVICE THAT IS ACTUALLY GOING ON HERE AS WELL. WE ARE WASTING SOME TIME AS WE NEED TO GET ON TO DOING BETTER THINGS IN A BETTER WAY. EVEN IF WE LOSE A BIG CHUNK OF THE MARKET THE PART THAT WE HAVE TO UNDERSTAND IS THAT THIS CAPACITY LEAVES A LOT FASTER THAN IT WILL EVER COME BACK. WHEN THIS ECONOMY RETURNS, THERE IS GOING TO BE A SIGNIFICANT PROBLEM ON HOW WE GET GOODS TO MARKET WHETHER IT IS STRAWBERRIES OR STEEL. THAT IS A VERY REAL PROBABILITY.
03:36:54	Melancon, Charlie	I SEE THE RAILROADS ARE ADVERTISING TRYING TO DO A COMPARISON. HAVE YOU SEEN A DECREASE IN THE AMOUNT OF FREIGHT THAT YOU ARE CALLING?
03:37:05	Williams, Steven	CERTAINLY THE BUILDING MATERIALS INDUSTRY TIED DIRECTLY TO THE HOUSING CRISIS THAT WE'RE FACING, THE STEEL INDUSTRY IS VERY ROBUST AND THAT IS PRINCIPALLY DRIVEN BY THE PROPOSITION BY EXPORTING MORE STEEL AND IMPORTING LESS STEEL. THE GLASS SIDE OF THE BUSINESS IS ACTUALLY QUITE GOOD BUT THAT IS PRINCIPALLY TO INDUSTRY CONSOLIDATION AND EXPORTS TO CANADA. COLLECTIVELY DEMAND IS UP FOR US CURRENTLY BUT IT IS BECAUSE OF A LACK OF CAPACITY WITHIN THE MARKET. WE HAVE SOME RESTORING PRICING POWER. IT IS THE IMPACT TO THE ECONOMY THAT NEEDS TO BE OUR GREATEST CONCERN BECAUSE IT IS PAINFUL FOR MY EMPLOYEES. WE WERE LAYING SOME PEOPLE OFF IN THOSE AREAS. PEOPLE HAVE HAD TO DRIVE TOO FAR TO COME TO WORK. IT IS A REAL BURDEN ON THE MEN AND WOMEN AND THEIR FAMILIES IN THIS COUNTRY.
03:38:15	Ross, Michael "Mike" A.	THANK YOU.
03:38:33	Ross, Michael "Mike" A.	HE REFERRED IN YOUR TESTIMONY THAT CONGRESS REPORTED GLOBAL CHANGES, WHAT KIND OF CHANGES ARE YOU REFERRING TO?
03:38:46	Williams, Steven	SPECIFICALLY I COMMENTED EARLIER ABOUT THE SIZE AND WEIGHT REGULATIONS. WE ARE THE WEAKEST LINK IN THE CHAIN, IS A GLOBAL SUPPLY CHAIN AND THE U.S. HAS FOUND ITSELF IN THE PRECARIOUS POSITION OF THE WEAKEST LINK. THERE IS OPPORTUNITY THERE FOR US TO INCREASE OUR COMPETITIVENESS BY BRINGING OURSELVES UP TO INTERNATIONAL STANDARDS. THAT SHOULD BE A GOAL OF OURS IN THE YEARS AHEAD. THE PART THAT IS INTERESTING IS THAT WHILE WE HAVE THE AT -- WILL WE HAVE THE APPETITE TO DO THIS? WE ARE TO BE A LOT OF SOUL- SEARCHING ABOUT IS THIS ALL ABOUT THE MONEY OR DOING THE RIGHT THING FOR THE ENVIRONMENT AS WELL? I THINK THE TRUCK SIZE AND WEIGHT REGULATIONS IS A GOOD EXAMPLE OF HOW THE DEPENDING UPON THE TYPE OF VEHICLE IN USE AND MOST OF THIS EQUIPMENT IS IN USE ALL OVER THIS COUNTRY, RANGES ANYWHERE FROM 11%-35% MORE PRODUCTIVE. IF I SIMPLY SLOWED DOWN AND WORK TO TAKE ADVANTAGE OF ONE OF THESE PARTICULAR ADJUSTMENTS THAT I AM TALKING ABOUT THAT WE HAVE THE POWER TO CHANGE I COULD REDUCE MY FUEL CONSUMPTION BY 37%. THAT IS WITHOUT ANY NEW TECHNOLOGY. TO GIVE YOU AN IDEA OF WHAT THAT WOULD MEAN TO ME THAT WOULD SAVE ME $50 MILLION IN FUEL. I THINK SENSIBLE LONG-TERM STRATEGIES ON BRINGING OURSELVES MORE IN LINE WITH WHAT IS GOING ON WITH THE REST OF THE WORLD WOULD HAVE SIGNIFICANT EFFECTS BOTH FOR THE ENVIRONMENT, HIGHWAY SAFETY, AND CERTAINLY REDUCE OUR DEPENDENCE ON FOREIGN OIL. THAT IS GOING TO TAKE A CONSTRUCTION CHANGE.
03:40:54	Ross, Michael "Mike" A.	IT WOULD SEEM TO ME, I MENTIONED EARLIER THAT I THINK THESE HIGH FUEL PRICES, GAS, DIESEL, AND NEXT IS GOING TO BE NATURAL GAS. THESE HAVE A DIRECT RELATIONSHIP TO THE ECONOMIC RECESSION WE ARE IN. A LOT OF PEOPLE ARE WONDERING HOW LONG ARE WE LOOKING AT PRICES THE WAY WE ARE NOW. IT AFFECTS EVERYONE. I REPRESENT A LOT OF FARMERS. IT IS REALLY AFFECTING THEM AND GET THEIR PRODUCE TO MARKET. I TALKED TO A CONTRACTOR WHO USES A PICK UP FOR THE NATURE OF HIS WORK AND IT COST HIM $150 TO GET TO WORK TODAY. IT IS UNCONSCIONABLE. I HAD A SMALL TRUCKER CALLED ME RECENTLY, HE HAS THREE TRUCKS. -- CALL ME RECENTLY, HE HAS THREE TRUCKS. HE HAS TO BE COMPETITIVE WITH HIS BID AND OVERNIGHT AT THE PRICE OF FUEL GOES UP AND SOMETIMES STARTS LOWER BEFORE HE BEGINS THE JOB AND THEN GOES UP WHILE HE'S DOING THE JOB AND HE LOSES HIS MONEY. THAT IS A SMALL TRUCKING FIRM. ISN'T IT TRUE THAT WEATHER IS TO BE THE AIRLINE BUSINESS OR TRUCKING, YOU ARE ABSORBING SOME OF THE INCREASE IS RIGHT NOW HOPING THE ECONOMY TURNS AROUND AND HANGING ON TO YOUR MARKET SHARE BUT AT WHAT POINT DO YOU HAVE TO START PASSING ALL THIS A LONG AND WHAT IS THIS DOES THIS DO TO BE STRUGGLING ECONOMY?
03:43:18	Steenland, Douglas	WE OWN OR LEASE OUR AIRPLANES, WE CANNOT SIMPLY TURN THEM ON OR TURN THEM OFF. WE HAVE 29,000 EMPLOYEES THAT WE WANT TO KEEP GAINFULLY EMPLOYED. WE HAVE LONG-TERM RENTALS AT AIRPORTS. WE ARE FLYING THE AIRLINE AS EVERYONE ELSE IS AND THE CHALLENGE IS THAT WE HAVE NOT YET BEEN ABLE TO PASS THROUGH THE COSTS BECAUSE IF WE SIMPLY POSTED PRICES OUT THERE THAT FULLY REFLECTED WHAT THE PRICE OF JET FUEL IS A NUMBER OF PEOPLE WOULD SAY THAT I AM NOT TRAVELING. AN AIRLINE SEAT IS A PERISHABLE SEAT. WHEN IT TAKES OFF AND IF THERE'S NOT SOMEONE PAYING FOR THAT IS GONE. IT IS NOT SOMETHING YOU CAN PUT INTO INVENTORY CODE IT PUTS TREMENDOUS PRICING PRESSURE ON THE BUSINESS AND REQUIRES THE RIGHT EQUILIBRIUM BETWEEN THOSE PEOPLE THAT ARE PREPARED TO PAY THE PASTOR COSTS AND WHAT THE SIZE AND CAPACITY OF THE INDUSTRY IS. THE U.S. AIRLINE INDUSTRY WILL LOSE OVER $10 BILLION THIS YEAR. IF THIS IS WHAT THE PRICE OF FUEL IS FOR THE LONG-TERM AIR FARES WILL HAVE TO GO UP.
03:44:42	Ross, Michael "Mike" A.	HOW MUCH WOULD THEY BE TODAY IF ALL OF THE INCREASED COSTS IN FUEL WAS BEING PASSED ON?
03:44:52	Steenland, Douglas	I WOULD SAY 20%.
03:44:57	Ross, Michael "Mike" A.	TO TRULY REFLECT TODAY'S ENERGY PRICES YOUR TICKETS WOULD BE 20% HIGHER. I AM SURE THEY ARE TRYING TO CHARGE WITH THE MARKET WILL ALLOW AND ALSO TRYING TO PROTECT OR GROW YOUR MARKET SHARE. THE ICE SINCE SOME OF THE SMALLER GUYS OUT THERE ARE BECOMING LESS AND LESS COMPETITIVE AND AS A RESULT WE WILL HAVE LESS COMPETITION WHEREVER THIS SETTLES DOWN. WHAT DOES THAT DO TO THE ECONOMY?
03:45:33	Williams, Steven	I THINK WE WILL SEE A LOT OF THE CHANGES THAT WE SOLVE POST 1980 WHEN THE INDUSTRY WAS DEREGULATED. THIS IS A POINT IN TIME WHEN THERE IS GOING TO BE A SIGNIFICANT CHANGE IN THE MAKE UP BECAUSE OF THE BURDEN THAT MOST OF THE COMMUNITY CANNOT BEAR. THE GENTLEMEN THAT MIGHT BE THEIR LOSING HIS JOB MIGHT MIGRATE TO A COMPANY SUCH AS MINE BUT THAT DOES NOT LIMIT THE PAIN AND ANGUISH AND THE LOSS OF EQUITY AND A PIECE OF EQUIPMENT. THERE WILL BE A LOT OF PAIN IN THE TRANSITION. I THINK AN INTERESTING ADDITION WOULD BE THE COMMENT THAT WE ARE IN THAT PROCESS OF PRICING OUR TRUCK ORDER AND WILL BUY ABOUT 500 ADDITIONAL TRUCKS. THOSE TRUCKS ARE EXTREMELY MORE EXPENSIVE AND THE MOST DRAMATIC INCREASE IN PRICE I OF SEEN IN ANY YEAR TO YEAR -- THE 30 YEARS I'VE BEEN IN BUSINESS. WE'RE TALKING ABOUT AN EXCESS OF 30% INCREASE AND THAT IS DRIVEN BY THE PRICE OF OIL. DRIVING THE PRICE OF STEEL AND TIRES AND ALL OF THE COMPONENTS THAT ARE WITH IN THE TRUCK. SIGNIFICANT INCREASES AND THEY'RE COMING BACK TO ROOST EVEN ON OUR OWN DOORSTEP.
03:47:04	Ross, Michael "Mike" A.	I AM OVER MY TIME. THANK YOU FOR BEING SO GENEROUS AND INDULGENT.
03:47:10	Stupak, Bart	THAT INCLUDES ALL THE QUESTIONS OF THIS PANEL. LET ME MENTION A NUMBER OF ORGANIZATIONS ALREADY ENDORSING OUR LEGISLATION. I KNOW YOUR ORGANIZATION HAS, THE TEAMSTERS HAVE. THERE ARE MANY PIECES OF LEGISLATION PENDING BEFORE CONGRESS. FOR TESTIMONY TODAY HAS BEEN MOST HELPFUL BUT IT WOULD ALSO BE HELPFUL TO HAVE YOUR INPUT ON THIS LEGISLATION OR ANY OF THE OTHER LEGISLATION AS WE TRY TO MOVE THIS AHEAD. THANK YOU FOR BEING HERE AND THANK YOU FOR YOUR TESTIMONY.
03:48:26	Stupak, Bart	THE POLICY OF THE SUBCOMMITTEE IS TO TAKE ALL POLICY UNDER OATH. YOU HAVE THE RIGHT TO BE IF I SPY COUNCIL DURING YOUR TESTIMONY. DO YOU WISH TO BE PRESENT BY COUNSEL? I ASK YOU TO RISE AND TAKE THE OATH, PLEASE. [READING OF THE OATHS AND] LET THE RECORD REFLECT THAT THE WITNESS HAS ANSWERED IN THE AFFIRMATIVE.
03:49:13	Lukken, Walter L.	THANK YOU, MR. CHAIRMAN. THANK YOU FOR INVITING ME TO TESTIFY IN THE ROLE OF SPECULATORS. DURING THE LAST FEW YEARS THE FUTURES MARKETS HAVE CHANGED DRAMATICALLY IN SIZE AND COMPLEXITY. TODAY'S EXCHANGES ARE TECHNOLOGY-DRIVEN CORP. SAID TRADE ELECTRONICALLY 24 HOURS A DAY ALL AROUND THE GLOBE. APPROXIMATELY FIVE TRILLION DOLLARS OF TRANSACTIONS FLOW EVERY DAY. THIS DESCRIPTION WOULD MAKE THE OVERSIGHT OF THESE MARKETS A CHALLENGE FOR REGULATORS. ADD TO ITS SUBPRIME CRISIS, RECORD COMMODITY PRICES AND ENERGY PRICES AND THE INFLUX OF FUNDS INTO THE FUTURES MARKETS. IT IS CLEAR THAT THESE ARE CHALLENGING TIMES. RECENT INCREASES IN THE RISE IN CRUDE OIL HAS PUT -- PRICE OF CRUDE OIL HAS MADE PROBLEMS FOR CONSUMERS WE RECOGNIZE THAT THESE MARKETS IN THEIR PARTICIPANTS HAVE A FAULT SIGNIFICANTLY -- HAVE EVOLVED SIGNIFICANTLY. AS PRICES HAVE ESCALATED WE HAVE PURSUED AN ACTIVE AGENDA TO ENSURE THE COMMODITIES FUTURES MARKETS ARE ALREADY FREE DISTORTION. THESE INITIATIVES FALL INTO FIVE BROAD CATEGORIES, INCREASING INFORMATION AND TRANSPARENCY, INSURING PROPER MARKET CONTROLS, CONTINUING AGGRESSIVE ENFORCEMENT EFFORTS, IMPROVING OVERSIGHT ORDINATION, SEEKING INCREASE FUNDING. THE PROPER OVERSIGHT OF THE MARKETS REQUIRES TRANSPARENCY. MARKET REGULATORS MUST RECEIVE THE NECESSARY INFORMATION TO CONDUCT SURVEILLANCE OF MARKET ACTIVITY FROM STEADY LONG-TERM FINANCIAL TRENDS AND EVALUATE POLICY CHANGES AS CHANGES OF GOLF. THE BACKBONE OF THE MARKETS WITH A PROGRAM IS THE LARGE TRADER SYSTEM. ALL LARGE TRADERS MUST FILE DAILY WITH THE FUTURES AND OPTIONS POSITIONS IN THE MARKET COME TO THIS INFORMATION ENABLES THE SURVEILLANCE ECONOMIST TO OVERCOME ALL TRADERS OF SIZE TO MAKE SURE THAT NO ONE IS TEMPTED TO MANIPULATE THE FUTURES MARKETS. AS MARKETS HAVE BECOME ELECTRONIC AND GLOBAL WE HAVE BEEN WORKING TO EXPAND THE TRADE DATA COLLECTION TO ACCOMMODATE THESE TRENDS. ON MAY 29TH AND ANNOUNCED AN AGREEMENT WITH THE U.K. FINANCIAL-SERVICES A STORY TO CREATEGREAT EXPAND -- FINANCIAL-SERVICES GROUP TO GREATLY EXPAND. THIS INFORMATION SHARING IS UNPRECEDENTED. WE HAVE TAKEN ACTION TO IMPROVE THE TRANSPARENCY OF INDEX TRADERS AND SWAP DEALERS IN THE ENERGY MARKETS. IN MAY WE ANNOUNCED WE WOULD USE OUR SPECIAL AUTHORITY TO GET A MORE DETAILED INFORMATION FROM SWAP DEALERS ON THE AMOUNT OF INDEX TRADING IN THE MARKETS AND EXAMINE WHETHER INDEX TRADERS ARE PROPERLY CLASSIFIED FOR RETORT PURPOSES. THESE INFORMATION REQUEST HAD BEEN SENT AND THE EXPECT TO BEGIN RECEIVING MORE DETAILED INFORMATION ON INDEX FUNDS AND OTHER TRANSACTIONS THAT ARE BEING CONDUCTED THROUGH SWAP DEALERS. AFTER ANALYZING THIS DATA WILL PROVIDE AIRPORT TO CONGRESS BY SEPTEMBER 15TH REGARDING THE SCOPE OF COMMODITY INDEX TRADING IN THE FUTURES MARKETS AND RECOMMENDATIONS FOR IMPROVED PRACTICES AND CONTROLS SHOULD THEY BE REQUIRED. LAST FALL THE COMMISSION WORK WITH CONGRESS TO ENACT LEGISLATION AS PART OF THE FARM BILL REQUIRING EXACT COMMERCIAL MARKETS THAT TRADE LINKS CONTRACTS TO PROVIDE US WITH REPORTS AND ACCOUNTABILITY LIMITS ON PRODUCTS. WE BELIEVE THAT THESE AUTHORITIES WERE NECESSARY TO PROTECT THE ENERGY MARKETPLACE. AS NOTED EARLIER, BUT HE IS SWITCHING CONTRACTS ARE NOT PURELY DOMESTIC BUT ALSO HAVE BEEN ACROSS INTERNATIONAL BORDERS. MOST ENERGY AND AGRICULTURE COMMODITIES ARE TRADED IN A GLOBAL MARKETPLACE AND THE U.S. MARKETS HAVE BEEN FACING CHALLENGES OF CROSS BORDER TRADING AND REGULATION FOR MANY YEARS. WE UTILIZE OUR MUTUAL RECOGNITION PROCESS FOR FOREIGN EXCHANGES THAT ALLOWS U.S. INSTITUTIONS ACCESS TO THOSE MARKETS BY STRIKING A BALANCE BETWEEN THE NEED FOR U.S. REGULATORS TO ENSURE PROPER OVERSIGHT OF OUR MARKETS AND THE ABOLISHMENT OF THE INCREASED POLARIZATION OF INTERNATIONAL MARKETS REQUIRES COORDINATION BETWEEN GOVERNMENTS. WITH THIS BALANCE IN MIND LAST WEEK WE ANNOUNCED MODIFICATIONS TO THE BOARD OF TRADE PROCESS AFTER CONSULTATIONS FROM TO WE REVISED THE ACCESS LETTERS TO REQUIRE THE IMPLEMENTATION OF ACCOUNTABILITY LIMITS ON ITS CRUDE OIL CONTRACTS. WE WILL ALSO REQUIRE OTHER FOUR EXCHANGES THAT SEEK SUCH ACCESS TO PROVIDE US WITH LARGE TRADE REPORTS AND TO IMPOSE POSITION AND ACCOUNTABILITY LIMITS FOR ANY PRODUCTS WINDS U.S. FUTURES CONTRACTS. THIS ENHANCED INFORMATIONS INFORMATION WILL HELP US IN SURVEILLANCE OF OUR REGULATED DOMESTIC EXCHANGES WHILE PRESERVING THE BENEFITS OF THEIR MUTUAL PROGRAMS TO ENTER THE ENVIRONMENT IS RIGHT FOR THOSE WANTING TO MIDDLE OF MANIPULATE THE MARKETS. WHEAT SAID SINCE 20007 THE DIVISION -- WE SAID THAT THE DIVISION OF ENFORCEMENT HAS BEEN LAUNCHING A NATIONWIDE CRUDE OIL INVESTIGATION. STRONG ENFORCEMENT IS IMPERATIVE DURING THIS TIME. GIVEN OUR SIZE AND ENORMITY OF THE GLOBAL MARKETPLACE, WE MUST ALSO ENGAGE OTHERS IN GOVERNMENT AS WE SEEK TO MEET OUR MISSION. TWO WEEKS AGO WE ANNOUNCED THE FORMATION OF AN INTERAGENCY TASK FORCE TO EVALUATE DEVELOPMENTS IN THE COMMODITY MARKETS. I'VE ALSO INVITED THE FTC TO PARTICIPATE AS WELL GIVEN THE EXPERTISE IN THESE ENERGY MATTERS. THE TASK FORCE IS INTENDED TO BRING TOGETHER THE BEST AND BRIGHTEST MINDS OF GOVERNMENT TO AID REBEL TORY UNDERSTANDING OF THESE MARKETS. IF IT SOUNDS BUSY, IT IS, GIVEN THAT THE AGENCY'S STAFFING LEVELS ARE AT RECORD LEVELS. VOLUMES ON U.S. FUTURES EXCHANGES HAVE INCREASED 8000% COMPARED TO A 12% INCREASE ITS STAFFING LEVELS COULD DIP AS THE AGENCY IN PARKS ON OUR NEW AUTHORITIES AND INITIATIVES IN RESPONSE, IT IS IMPERATIVE THAT THESE BE MET WITH ADEQUATE RESOURCES. WE'RE IN THE MIDDLE OF IMPLEMENTING OUR NEW FARM BILL AUTHORITIES WHICH REQUIRE MANY CHANGES AS WELL AS HARD WORK FROM A STRAIN STAFF. THE AGENCY STAFF IS BRACING TO IMPLEMENT THE MANY RECENT INITIATIVES I'VE JUST OUTLINED. OUR EMPLOYEES ARE FULL-TIME REGULATORS CHARGED WITH OVERSEEING THESE MARKETS EVERY DAY. WITHOUT PROPER FUNDING THE AGENCY WILL NOT BE ABLE TO SUSTAIN THIS PACE MUCH LONGER. THE COMMISSION IT SHARES THE CONCERN FOR THE CURRENT CONDITIONS IN CURRENCY MARKETS AND FOR THE EFFECT OF CRUDE OIL PRICES ON BUSINESSES AND WORKERS. THESE ARE DIFFICULT ECONOMIC TIMES AND WE RECOGNIZE THE NEED TO RESPOND ACCORDINGLY TO MAKE SURE THE FUTURES MARKETS WERE PROPERLY FOR ALL AMERICANS. THANK YOU FOR ALLOWING ME TO TESTIFY AND I WELCOME YOUR QUESTIONS.
03:57:15	Stupak, Bart	THANK YOU FOR YOUR TESTIMONY. WE ARE TALKING ABOUT A THIRD HEARING. NOW YOU INDICATE THAT YOU REQUIRE THE SAME LIMITS AND ACCOUNTABILITY LEVELS WHICH APPLY IT TO U.S. MARKETS TO APPLY TO FUTURE IS IN THE U.K.,
03:57:57	Lukken, Walter L.	YES.
03:58:03	Stupak, Bart	ARE YOU GOING TO REQUIRE THE POSITIONS TAKENxD ON BOTH EXCHANGES BE ADDED TOGETHER PROOF CAN A TRADER HOLD A MAXIMUM LIMIT ON BOTH EXCHANGES OR WILL THEY BE ABLE TO DOUBLE THAT LIMIT BY TRADING IN TWO DIFFERENT PLACES?
03:58:20	Lukken, Walter L.	EACH EXCHANGE WAS SET ITS OWN LIMITS.
03:58:24	Stupak, Bart	IT IS NOT THE AGGREGATE, THEY HAVE THEIR OWN LIMITS.
03:58:26	Lukken, Walter L.	THAT IS CORRECT.
03:58:29	Stupak, Bart	ARE THERE 18 DIFFERENT EXCHANGES? COURSE WILL THEY BE TREADING ON TO BUY? ? --
03:58:51	Stupak, Bart	WILL BE TRADING ON DUBAIIS A BE TRADING ON DUBAI PROOF?
03:59:08	Lukken, Walter L.	WE HAVE A 12,000 GALLON CONTRACT IN JUNE.
03:59:12	Stupak, Bart	WILL NYMEX BE ABLE TO TRADE ON TO BUY?
03:59:17	Lukken, Walter L.	IF THE MERCANTILE EXCHANGE CAN BE SAID TO HAVE LARGE TRADE REPORTING AND THE IMPOSITION OF LIMITS, THAT EXCHANGE HAS AN ACCESS LETTER WITH US AND IT WOULD BE SUBJECT TO LIMITS.
03:59:31	Stupak, Bart	EVERY EXCHANGE I HAVE, I CAN HAVE WHATEVER POSITION LIMIT THAT IS. THE 64% FOR THE CRUDE-OIL CONTRACT EXCHANGE ORIGINATES IN THE U.S. DURING 2007. MY QUESTION IS, THE FOREIGN BOARD HAS THIS ORIGIN IN THE U.S., WHY SHOULDN'T IT BE SUBJECT TO REGULATIONS AND REGISTER AS A DESIGNATED CONTRACT MARKET?
04:00:23	Lukken, Walter L.	THESE FIGURES INCLUDE TRADE CENTER HAPPENING BOTH U.S. AND OVERSEAS. IF YOU JUST LOOK AT THOSE THAT ORIGINATE HERE IN THE U.S. AND YOU BREAK IT DOWN BY SIZE IT IS ABOUT 45% OF THE MARKET. EVEN AT 45% YOUR QUESTION HOLD VALID WHICH IS WHY SHOULD WE TRY TO IMPOSE A U.S. REVELATORY STRUCTURE ON THESE MARKETS TO FOR US WE RECOGNIZE THAT THESE ARE GLOBAL MARKETS. -- WHY SHOULD WE TRY TO IMPOSE A REGULATORY STRUCTURE ON THESE MARKETS? WE RECOGNIZE THAT THESE ARE GLOBAL MARKETS. WE NEED CONTROLS AND INFORMATION THAT IS IMPORTANT.
04:01:05	Stupak, Bart	WHY CAN'T YOU HOLD THESE SAYING CHANGES LIKE YOU DO AT NYMEX? I'M LOOKING AT VOLUMES FOR ALL TERMINALS, 64.1%, WHY WOULD THEY COME UNDERNEATH THE SAME REGULATION?
04:01:24	Lukken, Walter L.	THE THIS IS SOMETHING THAT WE LOOK AT IN 2006 AND HELD PUBLIC HEARINGS ON THIS AND WENT OUT AND PUBLIC RECORD TRY TO GET COMMENTS ABOUT THIS. WE RECOGNIZE FOREIGN REGULATORS AS THE HOME COUNTRY REGULATOR BUT THEN CONDITION -- A
04:01:42	Stupak, Bart	THE QUESTION WAS WHY SHOULD IT BE FOREIGN BOARD OF TRADE'S BE SUBJECT TO REGULATION AND REGISTER AS A CONTRACT MARKET?
04:01:56	Lukken, Walter L.	CONGRESS COULD MAKE THE CHOICE TO GET RID OF OUR PROGRAM BUT THAT IS NOT GOING TO STOP TRADE FROM HAPPENING OVERSEAS.
04:02:06	Stupak, Bart	WE WILL KNOW WHOSE TRADING AND IT KNOW WHO THE CONTRACTS ARE HOLDING AND WHAT THE PRICES.
04:02:13	Lukken, Walter L.	OUR PROGRAM HAS ALLOWED US TO SEE THE TRANSPARENCY ON THESE MARKETS. WE SEE NOT ONLY U.S. PARTICIPANTS BUT WE ALSO SEE TWO-THIRDS OF THOSE PARTICIPANTS OF THE FOREIGNERS, TO WE HAVE SEEN --
04:02:30	Stupak, Bart	WHY DID YOU HAVE TO PUT OUT A SPECIAL CALL IF YOU HAVE SEEN ALL OF THIS? YOU DON'T GET TO SEE THE SWAPS. THIS IS A MAJOR PROBLEM HERE.
04:02:44	Lukken, Walter L.	THAT IS SOMETHING THAT THE AGENCY ASKED FOR MORE DATA ABOUT SWAPS. THESE ARE AGGREGATE IS IN OUR MARKETS. THEY BRING MULTIPLE POSITIONS TO THE MARKETS TO ENTER THE HAVE CLIENTS SUCH AS MORGAN STANLEY CLINTON THEY TALK ABOUT HAVING THE AIRLINE INDUSTRY AS THEIR MARKETS. -- MORGAN STANLEY OPENLY TALKS ABOUT HAVING THE AIRLINE INDUSTRY AS THEIR CLIENTS. WE LOOK AT WHAT THE SWAP DEALERS ARE BRINGING. WE DON'T LOOKEDLOOKED INTO WHO THEIR CLIENTS ARE. -- LOOK INTO THEIR CLIENTS ARE.
04:03:24	Stupak, Bart	I AM LOOKING AT AN ARTICLE THAT SAYS THAT THE HEAD OF ENFORCEMENT OF YOUR AGENCY SAYS THAT AT THIS TIME WE HAVE NO EVIDENCE OF SPECULATION IN THE WESTERN TEXAS INTERMEDIATE CRUDE MARKETS. SECRETARY PAULSON HAS PRETTY MUCH SAID THE SAME THING. DO YOU THINK IS REASONABLE FOR YOUR HEAD OF THE INVESTIGATION TO MAKE SUCH A STATEMENT? IT SOUNDS LIKE YET DETERMINED BEFORE YOU GOT THE INFORMATION THAT THERE WAS THE SPECULATION.
04:04:16	Lukken, Walter L.	WE HAVE A DIFFERENT DEFINITION, WE'RE TALKING ABOUT SOMEONE WHO MANIPULATES THIS FOR PROFIT. THERE MIGHT BE SO MUCH FINANCIAL MONEY COMING INTO THE MARKETS AND THAT IT MIGHT BE ARTIFICIALLY CREATING A BUBBLE. THAT IS SOMETHING DIFFERENT THAN WHAT WE LOOK AT PUERTO RICAN NEVER RULE OUT DEFINITIVELY THAT MANIPULATION IS NOT HAPPENING. OUR ENFORCEMENT DIRECTOR SAID THAT WE NOT SEEN THAT WE HAVE THIS BUBBLE GOING UP BUT WE CANNOT RULE OUT MANIPULATION THAT IS NOT OCCURRING.
04:04:57	Stupak, Bart	HAVING BEEN A POLICE OF A SIR YOU GET A SENSE THAT SOMETHING IS GOING ON AND YOU START DIGGING. EXCESSIVE SPECULATION IS FOR HAD IT BY THE COMMODITIES EXCHANGE ACT -- EXCESSIVE SPECULATION IS PROHIBITED BY THE COMMODITIES EXCHANGE ACT. WHAT WOULD YOU CONSIDER SPECULATIVE EXCESS THIS?
04:05:26	Lukken, Walter L.	I THINK YOUR CHART HAD TO 70%. THOSE ARE FIGURES, A LOT OF THAT GROWTH IS WHAT DEALERS, TRYING TO FIGURE OUT WHAT THE SWAP DEALERS ARE DOING. WE HAVE SENT SPECIAL CALLS TO FIND OUT HOW MUCH OF THE BUSINESS IS COMMERCIAL. I THINK WE HAVE A CHART THAT WAS GIVEN TO THE COMMITTEE MEMBERS. . .
04:06:13	Stupak, Bart	THERE IS YOUR CHART AND WE GET TO TAKE A LOOK AT IT. ISN'T THIS LOT? THE LAW OF SUPPLY AND DEMAND FORCES YOU TO ATTRACT NEW SELLERS. THERE IS A SHIFT OUT IN PRICE EVERY TIME A BUYER BUYS OR HOLDS. A NE ENTRANCE IS HIGHER IF THERE WERE NO MARKET. EVERY TIME YOU DO THIS, PRICES HIGHER. -- PRICE IS HIGHER. THE PRICE HAS TO GO AND THIS IS UNREASONABLE AND LED TO EXCESS SPECULATION.
04:07:06	Lukken, Walter L.	AS YOU MENTIONED, THERE IS A SHORT FOR EVERY LONG. THERE IS SOMEBODY THAT WILL LOSE FOR EVERY WINNER. THAT IS REPORT -- THAT IS IMPORTANT. I THINK THAT WHAT THIS CHART -- WE CANNOT MAKE ANY HARD FAST CONCLUSIONS. IT IS WORTH THE EFFORT THAT WE ARE GOING THROUGH TO GET THE PERMISSION FROM THESE SWAP DEALERS TO LOOK AT THIS. PEOPLE ARE LOOKING AT THIS WITH US SO THAT WE CAN MAKE SOUND, INFORMED DECISIONS. I AGREE WITH YOU.
04:07:48	Stupak, Bart	SECRETARY PAULSON, AFTER YOU ISSUED YOUR CALL, HE SAID THAT HIS POSITION WAS THAT HE DID NOT BELIEVE THAT THIS WAS ANYTHING BUT A SUPPLY AND DEMAND. THEY DO NOT SET TRENDS. THEY FOLLOW TRENDS.
04:08:08	Stupak, Bart	A FAIR READING SEEMS TO ME THAT THIS IS A RUSH TO JUDGMENT AND I DO NOT KNOW IF YOUR INTERAGENCY TASK FORCE IS GOING TO CHANGE THE SECRETARY'S MIND. IT SOUNDS LIKE HE MADE UP HIS MIND BEFORE WE HAD ANY AFFIRMATION COME FORTH.
04:08:25	Lukken, Walter L.	AS A INDEPENDENT REGULATORY AGENCY, WE HAVE TO KEEP AN OPEN MIND. THAT IS WHY WE ARE TRYING TO GET BETTER INFORMATION. THAT IS WHAT WE'RE GOING TO DO.
04:08:38	Stupak, Bart	MR. WOULD FEEL?
04:08:41	Whitfield, Edward	THANK YOU FOR BEING WITH US TODAY. OBVIOUSLY, WE ALL COME TO THIS FROM DIFFERENT VIEWPOINTS. AS MEMBERS OF CONGRESS, WE ARE FOCUSED ON WHAT WE CAN DO TO GET THESE PRICES DOWN AND HELP OUR ECONOMY. " WE WANT TO HELP EVERYBODY MEET THEIR FINANCIAL OBLIGATIONS AND FROM YOUR PERSPECTIVE, YOU ARE ENFORCING LAWS AND REGULATIONS AS THEY RELATE TO THE COMMODITY FUTURES MARKET. I KNOW THAT THE CHAIRMAN HAD MENTIONED THAT HE DID NOT FEEL LIKE SPECULATORS WERE AFFECTING THE PRICE. YOUR CHIEF ECONOMIST SAID LAST MONTH THAT THERE WAS NO EVIDENCE OF THAT. WITHOUT GETTING INTO THE ARGUMENT, THE FIRST PANEL FELT LIKE IT WASN'T A DRAMATIC IMPACT. WHAT SPECIFIC AUTHORITY DO YOU HAVE, TODAY, TO PENALIZE SOMEONE OR TAKE SOME ACTION IF IT IS DETERMINED THAT THERE IS EXCESSIVE SPECULATION?
04:10:04	Lukken, Walter L.	EXCESSIVE SPECULATION IS NOT DEFINED IN ACT -- IN OUR ACT. IT ENSURES THAT UNWARRANTED PRICE CHANGES ARE NOT OCCURRING. WE DO HAVE A CORE PRINCIPLE THAT REQUIRES EXCHANGES TO SET POSITION LIMITS AS WELL AS ACCOUNTABILITY LIMITS. THEY DO THAT AND HAVE BEEN DOING THAT SINCE 2000. EXCESSIVE SPECULATION IS AN UNDEFINED TERM, BUT WE DO HAVE CONTROLS IN PLACE.
04:10:42	Whitfield, Edward	LET ME JUST INTERJECT FOR A MOMENT.
04:10:45	Whitfield, Edward	EVEN THOUGH IT IS NOT DEFINED WITH THE DRAMATIC INCREASE OF OIL FUTURES MARKET, I SUPPOSE THAT THERE HAS BEEN SOME DISCUSSION ABOUT WHAT IS EXCESSIVE SPECULATION, CORRECT?
04:10:57	Lukken, Walter L.	YES SIR.
04:10:59	Whitfield, Edward	WHAT DID YOU DETERMINE?
04:11:02	Whitfield, Edward	IF YOU COME UP WITH ANY CONCLUSION OF WHAT EXCESSIVE SPECULATION IS AS IT RELATES SPECIFICALLY TO THIS PROBLEM OF OIL FUTURES?
04:11:12	Lukken, Walter L.	WE HAVE NOT DEFINED EXCESSIVE SPECULATION, BUT WE HAVE BEEN TAKING ACTION TO ADDRESS SOME OF THE CONCERN AROUND SPECULATORS INCLUDING CLOSING THE LOOPHOLES AND LOOKING INTO SWAP DEALERS.
04:11:27	Whitfield, Edward	YOU LISTED A NUMBER OF INITIATIVES THAT YOU HAD TAKEN AND SO YOU CAN DO MOST OF THESE BY REGULATION OR TO SOME OF THEM REQUIRE LEGISLATION?
04:11:43	Lukken, Walter L.	THE ENRON LOOPHOLE HADAS IMPLEMENT THAT. THE SWAP DEALER INFORMATION, WE'RE TRYING TO SEE WHAT INFORMATION THEY BEAR ON WHAT THE SITUATION IS. WE MAY OR MAY NOT HAVE TO REQUIRE CERTAIN LEGISLATIVE CHANGES. I DO NOT KNOW YET.
04:11:57	Whitfield, Edward	WHAT ABOUT MARGIN REQUIREMENTS?
04:12:03	Lukken, Walter L.	THE CDC DOES NOT DO THAT. I WOULD LIKE TO ADDRESS THAT THE MARGIN IN THE FUTURES MARKET IS DIFFERENT THAN IN THE STOCK MARKETS. IT IS NOT A DOWN PAYMENT ON A GOOD SUCH AS IN THE SECURITIES MARKET. IT IS MEANT TO COVER A ONE DAY PRICE CHANGE AND IT HAS BEEN SUCCESSFULLY DOING THAT TO PREVENT EXCESSIVE RISK IN THE FUTURES MARKET FOR 150 YEARS.
04:12:27	Whitfield, Edward	SO YOU WOULD OPPOSE CHANGING THE MARGIN?
04:12:29	Lukken, Walter L.	I THINK HE WOULD NOT RESULT IN WHAT EVERYBODY IS LOOKING FOR. THAT IS LOWER PRICES. THAT SHOULD BE A CONCERN. IF PEOPLE ARE CONCERNED ABOUT INDEX TRADERS, THOSE PEOPLE ARE NORMALLY HOLDING A DOLLAR OF ASSETS FOR EVERY POSITION IN PUTTING UP. THEY COULD MEET THOSE MARGIN CALLS, AND I AM NOT SURE THAT WILL GET THEM OUT OF THE MARKET'S.
04:13:00	Whitfield, Edward	WHAT ELSE DID IT DO TO ASSIST YOU OTHER THAN ADDRESSING THE ENRON ISSUE?
04:13:08	Lukken, Walter L.	WE ALSO HAD INCREASED PENALTIES FOR MANIPULATION. THIS IS VERY HELPFUL. IT HELPS INSURE THAT IT IS ENOUGH OF THE PUNISHMENT FOR PEOPLE TRYING TO MANIPULATE THE MARKETS. WE ALSO RECEIVED SOME GREATER RETAIL FRAUD AUTHORITY FOR FOREIGN CURRENCY FRAUD IT WILL GIVE US CRITICAL THAT THE AGENCY.
04:13:30	Whitfield, Edward	WELL, THANK YOU VERY MUCH.
04:13:36	Stupak, Bart	ANY OTHER QUESTIONS?
04:13:47	Melancon, Charlie	WHEN WAS IT THAT THE CFTC STARTED LOOKING INTO THE SWAP ISSUE? HOW LONG AGO WAS THAT?
04:13:54	Lukken, Walter L.	OBVIOUSLY, WE HAVE ALWAYS HAD THE ABILITY TO BE ABLE TO ASK FOR SWAP DEALER INFORMATION USING OUR 18 05 AUTHORITY. THAT OCCURS QUITE FREQUENTLY. TRYING TO GET INFORMATION AS A CLASS, THIS IS SOMETHING THAT WE HAVE STARTED THINKING ABOUT AS PRICES HAVE BEEN ESCALATING. WE PROBABLY NEED TO FIND OUT MORE PERMISSION ABOUT THE UNDERLYING TRANSACTIONS.
04:14:22	Melancon, Charlie	A MONTH AGO, THREE MONTHS AGO, A YEAR AGO?
04:14:28	Lukken, Walter L.	YES.
04:14:30	Melancon, Charlie	ABOUT WHEN?
04:14:31	Melancon, Charlie	SIX MONTHS AGO?
04:14:32	Lukken, Walter L.	YES, CERTAINLY. DID CONGRESS ASK YOU TO LOOK INTO THIS OR DID YOU DO THIS ON YOUR OWN OR DID THE AGENCY DO IT ON ITS OWN?
04:14:52	Melancon, Charlie	YOU ARE ESCALATING THE PRICE AND IT WILL BE TOO LATE.
04:14:55	Melancon, Charlie	I KNOW THE GOVERNMENT DOES NOT WORK THAT FAST, BUT DOES ANYBODY EXPEDITE THE WORK YOU ARE DOING?
04:15:01	Lukken, Walter L.	WE SAID BY SEPTEMBER 15. IF WE CAN GET IT BEFORE THEN, WE CERTAINLY WILL.
04:15:06	Melancon, Charlie	I HAVE NEVER KNOWN AN AGENCY TO BE THE DEADLINE.
04:15:11	Melancon, Charlie	WHO EXACTLY IS ICE? I KNOW THEY ARE A BROKERAGE FIRM. I KNOW THEY ARE BASED OUT OF ENGLAND. I KNOW THEY HAVE OFFICES IN ATLANTA, BUT WHO ARE THEY? WHO ARE THE PRINCIPLES? WHO SET THEM UP.
04:15:28	Melancon, Charlie	IS IT AN AMERICAN COMPANY INVOLVED BUT DID NOT LIKE THE WAY THAT THINGS WERE REGULATED?
04:15:33	Lukken, Walter L.	I THINK IT IS BASED IN ATLANTA, BUT THEY BOUGHT A BRITISH COMPANY SEVERAL YEARS BACK. WHO IS THERE IN ATLANTIC?
04:15:44	Lukken, Walter L.	BY BRITISH LAW, IT HAS TO BE AN INDEPENDENT BOARD. THIS IS SOMETHING THAT YOUR NEXT PANEL CAN'T TALK ABOUT.
04:15:48	Melancon, Charlie	WHO ARE THEY?
04:15:54	Lukken, Walter L.	I DO NOT KNOW THE EXACT INDIVIDUALS. THEY'RE THE ONES WHO BOUGHT THE I.P. IN LONDON.
04:16:06	Melancon, Charlie	IS THAT BASICALLY HOW I GOT STARTED HERE IN ATLANTA? WAS THAT TWO YEARS AGO?
04:16:12	Lukken, Walter L.	I THINK HE WAS IN THE EARLY 2000'S THAT ICE CAN INFORMATION.
04:16:21	Melancon, Charlie	SO, WHEN THE CFTC MADE CHANGES IN THE WAY THEY DO BUSINESS, WHO CAME AND ASKED THE BOARD FOR THAT? AND SPECIFICALLY CAME IN SAID THAT WE NEED TO MAKE THESE CHANGES BECAUSE?
04:16:40	Lukken, Walter L.	THE POLICY REGARDING THAT HAS BEEN A POLICY SINCE 1991. THAT PREDATES MYSELF. THAT HAS BEEN THE EXEMPTION SINCE THAT TIME.
04:16:52	Lukken, Walter L.	THIS IS SOMETHING THAT WE DEALT WITH IN A PUBLIC HEARING. THESE ISSUES. SOME OF THESE ISSUES PREDATE THAT.
04:17:07	Melancon, Charlie	AMENDED THE CHANGES TAKE PLACE?
04:17:09	Lukken, Walter L.	WHICH CHANGES?
04:17:12	Melancon, Charlie	THE CHANGES IN THE WAY WE REGULATE THE MARKET? AND THAT OVER TWO YEARS AGO, IT WAS BROUGHT TO MY ATTENTION. I WAS WONDERING WHEN WE STARTED THIS ALLOWING FOR THE ESCALATION BY CHANGING THE RULES OF HOW WE RAN THIS?
04:17:37	Lukken, Walter L.	ICE EUROPE WAS THE FORMER I.P. E. SOON2006 WAS WHEN THE SURVEILLANCE BECAME A CONCERN. BECAUSE THEY WERE LOOKING TO NYMEX, THE POTENTIALLY MOVE THE MARKETS. THAT IS WILL LOOK AT INTERMISSION SHARING BETWEEN THE LONDON EXCHANGE IN THE NEW YORK EXCHANGE. SINCE THAT PERIOD OF TIME, WE HAVE WORK TO IMPROVE -- WORKED TO IMPROVE THE POSITION. WE ARE WORKING TO MAKE THE EQUIVALENT OF WHAT THEY'RE DOING IN BRITAIN.
04:18:26	Melancon, Charlie	SO I SAW ONLY DEALS OIL?
04:18:32	Melancon, Charlie	R DID THEY HAVE OTHER COMMODITIES?
04:18:34	Lukken, Walter L.	THAT IS PRIMARILY THEIR BUSINESS.
04:18:38	Melancon, Charlie	IF I WERE A COMMODITY MARKET, LIKE NYMEX, WITH AND I WANT TO TRADE IN ALL COMMODITIES?
04:18:48	Lukken, Walter L.	LET ME CORRECT MYSELF. THEY ALSO OWN A FULLY REGULATED EXCHANGE. THEY SAID TO QUICKLY CHANGE TO THE ICE U.S.. THEY HAVE OTHER COMMODITIES THAT ARE FULLY REGULATED IN THE UNITED STATES.
04:19:06	Melancon, Charlie	I CAME FROM THE SHOOTING INDUSTRY AND I HAVE NOT SEEN THE PRICE WILL GO UP. THEY DO NOT WANT TO SPECULATE ON THAT?
04:19:14	Melancon, Charlie	WE WOULD LIKE TO SEE SOME SPECULATION IN THE SUGAR BUSINESS.
04:19:21	Melancon, Charlie	I THINK MY TIME HAS JUST ABOUT RUN OUT. I WOULD ENCOURAGE YOU TO EXPEDITE THE REPORT IF YOU WOULD PLEASE. AS YOU ARE AWARE, $4 A GALLON IS GETTING TOUGHER AND TOUGHER TO EXPLAIN TO CONSTITUENTS.
04:19:42	Stupak, Bart	MR. BARTON, FOR QUESTIONS, PLEASE.
04:19:44	Barton, Joe	THANK YOU MR. CHAIRMAN. FIRST, WANT TO COMMEND YOU FOR TAKING SOME OF THE ACTION THAT THE CFTC HAS TAKEN OVER THE PAST FEW WEEKS. THEY MIRROR CLOSELY THE BILL BUT I PUT IN A LOT OF IT NUMBER OF OTHER MEMBERS. SO, WE'RE GLAD TO SEE SOME ACTIONS BEGINNING TO BE TAKEN. MY FIRST QUESTION GOES TO THE HEART OF WHY YOU WERE HERE. ASSUMING THAT THERE IS A PROBLEM IN THE MARKETS IN TERMS OF SPECULATION AND OIL FUTURES, IT WOULD SEEM TO ME THAT WE HAVE TO ADDRESS THE UNDERLYING SUPPLY AND DEMAND FUNDAMENTALS. THE MATTER WHAT WE DO, IT WILL NOT MAKE A DIFFERENCE IF WE DO NOT GET MORE SUPPLY OR LESS DEMAND. HAVING SAID THAT, I THINK THERE IS SOMETHING WE CAN DO IN SPECULATION. MY BIGGEST CONCERN BEYOND WHAT TO DO IS HOW TO MAKE IT CONGRUENT WITH THE FOREIGN MARKETS. OUR FIRST PANEL SEEMED PRETTY SATISFIED THAT IF WE DID IT IN UNITED STATES, THAT EUROPE WOULD FOLLOW OUR LEAD AND I GUESS ASIA WOULD ALSO. DO YOU SHARE THAT BELIEF THAT IT IS EASY TO MAKE WHATEVER WE DO GET THE INTERNATIONAL MARKETS TO CONFORM?
04:21:19	Lukken, Walter L.	THAT IS THE WORRY. AND THERE MAY BE SOME RETRIBUTION FROM FOREIGN MARKETS AGAINST -- THE U.S. EXCHANGES TRYING TO GET ACCESS TO FOREIGN MARKETS. WE HAVE TO BE MINDFUL OF THAT. YOU STILL HAVE TO BE SURE THE THE INFORMATION YOU GET IS NEEDED AND NECESSARY. THAT IS WHAT WE HAVE TRIED TO GET. THAT IS GOING TO BE EXTRAORDINARILY HELPFUL. AND TO REQUIRE ALL OF THESE EXCHANGES ALL AROUND THE WORLD TO COME TO REGISTER IN THE UNITED STATES, IT IS GOING TO BE DIFFICULT AND IT WILL REQUIRE ALL OF OUR EXCHANGES TO REGISTER ALL AROUND THE WORLD. THIS ABILITY TO RECOGNIZE EACH OTHER AROUND THE WORLD, WITH GOOD CONDITIONS TO ENSURE YOU'RE GETTING THE RIGHT REGULATORY AUTHORITY TO POLICE THOSE MARKETS IS EXTREMELY USEFUL. LIKE THE SAID, IF WE GOT RID OF OUR PROGRAM TOMORROW, THE LONDON MARKET WOULD NOT GO AWAY. WE WOULD JUST STOP SEEING IT. WE WANT TO MAKE SURE THAT WE SEE IT.
04:22:31	Barton, Joe	ONE OF THE RECOMMENDATIONS WAS TO RAISE THE MARGIN REQUIREMENTS. RIGHT NOW, WE LET THE COMMODITIES MARKETS SET THEIR OWN MARKET REQUIREMENTS. IF YOU BUY STOCK, YOU HAVE TO PUT UP 50 PERCENT OF THE VALUE THE DAY THAT YOU BUY IT. LET'S ASSUME THAT EITHER BY STATUTE OR REGULATION, WE RAISED THE MARGIN TO 25%. WHAT I SCHOOL ALONG WITH THAT? WHAT I WOULD THINK THAT IF THE ERROR 25 THEN WE WOULD BE AT HIM. WE WANT TO GET OUR BUSINESS. WE WANT TO GET THEIR BUSINESS. THAT IS ONE EXAMPLE WHERE IT WILL BE VERY DIFFICULT.
04:23:15	Lukken, Walter L.	I THINK THAT IS RIGHT.
04:23:19	Barton, Joe	WHAT ABOUT THE TRANSPARENCY REQUIREMENTS AND THE POSITION LIMITS? IF WE SAIDSET MORE REQUIREMENTS OR IN SOME OF THESE EXEMPTIONS AND REQUIRE REAL ENFORCEMENT ON LIMITS COME WHAT WOULD THE ICE MARKET DO ABOUT THAT?
04:23:40	Lukken, Walter L.	I THINK THAT TRANSPARENCY IS SOMETHING THAT WE WILL GET THEIR DATA. WE ARE TO PUT IT IN OUR TRADER COMMITMENT DATA. THE PUBLIC WILL BE ABLE TO SEE WHAT IS GOING ON IN COMMERCIAL AND NON-COMMERCIAL CATEGORIES. THAT WILL BE HELPFUL. IS HAS AGREED TO DO THAT.
04:24:02	Barton, Joe	SO IF WE -- WE HAVE ONE EXAMPLE WHERE NATURAL GAS COMPANIES, WHEN WE CRACKED DOWN ON THEM, THEY DID NOT CHANGE THEIR POSITION LIMITS, THEY JUST TOOK IT OVERSEAS.
04:24:14	Lukken, Walter L.	I THINK YOU HAVE TO BE MINDFUL THAT THAT IS A POSSIBILITY. STILL, ON PRINCIPLE, YOU WANT TO MAKE SURE THAT THE MARKETS ARE BEING PROPERLY REGULATED. THAT IS WHAT WE ARE TRYING TO DO. YOU NEED TO PROPERLY SURVEIL THE MARKETS, BUT ALSO WITH A DARKER MARKETS OR ELSEWHERE. THAT IS THE WORST SCENARIO THAT WE COULD PROBABLY 04.
04:24:37	Barton, Joe	DO YOU BELIEVE THAT THE STABILITY OF THE FINANCIAL MARKET IN BOTH THE UNITED STATES AND IN GREAT BRITAIN THAT THERE IS NOT MUCH CONCERNED ABOUT A THIRD MARKET BEING CREATED OUTSIDE OF THAT FROM WORK OVERSEAS AND THAT PEOPLE ARE NOW GOING TO PUT THEIR MONEY INTO BIN DUBAI, INDIA?
04:25:01	Lukken, Walter L.	LONDON AND NEW YORKER PROBABLY THE TWO MARKETS. IF THERE IS A BIG OVER-THE- COUNTER MARKET THAT COULD EXIST ELSEWHERE OUTSIDE THE U.S.. THAT MAY HAPPEN AS WELL. I THINK THAT THERE ARE FINANCIAL CENTERS AROUND THE WORLD THAT WOULD TRY TO USE THIS TO THEIR VANTAGE. TOKYO AND HONG KONG AND OTHERS. MY LAST QUESTION DE THINK THERE ARE PEOPLE THAT ARE ACTUALLY SELLING THE PRODUCT AND TAKING OWNERSHIP OF IT AND ARE THE DIFFERENT RULES FOR NON PHYSICAL FOR THOSE THAT ARE IN IT FOR FINANCIAL REASONS? BUT YES, AND WE DO, UNDER CURRENT LAW, SPECULATORS ARE SET WITH CERTAIN LIMITS OF WHAT THE KENDEIGH. WE DISCOVER THE PRICES AND WE DO NOT TRY THEM OUT. THE COMMERCIALS HAVE DIFFICULTY FINDING A SELLER FOR EVERY BUYER OR A BUYER FOR EVERY SELLER. LIQUIDITY DRIVES DOWN PRICES AS WELL. SO THAT IS USEFUL, TOO. WE WANT TO PRESERVE THAT AND MAKE SURE THE CONTROLS ARE IN PLACE.
04:26:19	Barton, Joe	THANK YOU, MR. CHAIRMAN.
04:26:22	Stupak, Bart	THANK YOU, MR. GREEN?
04:26:32	Green, Gene	THE CFTC STAFF HAS ISSUED NO ACTION LETTERS OR FOREIGN TRADE EXEMPTIONS WITHOUT REQUIRING THESE MARKETS TO REGISTER AS A DESIGNATED CONTRACT MARKET WITH THE CFTC, HOW DID THESE NO ACTION LETTERS COME INTO EXISTENCE AND WAS THIS FORMERLY APPROVED BY THE COMMISSION ITSELF?
04:26:55	Lukken, Walter L.	IT CAME INTO EXISTENCE IN 1996. AT OUR ACT CURRENTLY PROHIBITS US FROM REGULATING FOREIGN BOARD OF TRADE. IT IS DIFFICULT FOR US TO PUT CONDITIONS ON FOREIGN BOARDS OF TRADE. THIS ACCESS LETTER, THE NO ACTION LETTER, ALLOW US TO HAVE U.S. INSTITUTIONS THAT WERE SEEKING ACCESS WITH FOREIGN EXCHANGES TO HAVE ACCESS TO THOSE FOREIGN EXCHANGES UNDER CERTAIN CONDITIONS. THE STAFF DOES A FLORAL -- A THOROUGH REVIEW OF THESE DIFFERENT COUNTRIES AS WELL AS THE EXCHANGES THEMSELVES. IT CAN ALLOW THESE INSTITUTIONS TO TRADE FOREIGN PRODUCTS.
04:27:36	Green, Gene	TO YOU AGREE WITH THE DOCTOR'S TESTIMONY WHEN SHE STATES THAT NO ACTION PROCESS NEVER CONTEMPLATED AND EXCHANGE OWNED OR AFFILIATED BY A U.S. ENTITY WOULD ESCAPE THE CFTC REGULATIONS?
04:27:51	Lukken, Walter L.	THIS IS WHEN IT WAS STARTED IN 1996. I THINK IT WAS FORMALIZED IN 1999. THERE WERE NOT ANY PRODUCTS AT THAT TIME. WHEN THE PRODUCTS DID BECOME LINKED, THE CFTC HELD A PUBLIC HEARING ABOUT THE CHANGES THAT THEY WERE SEEN -- SEEKING.
04:28:17	Green, Gene	DE KNOW HOW MANY FOREIGN EXCHANGES HAVE TERMINALS IN THE U.S.?
04:28:21	Lukken, Walter L.	I THINK IT IS AROUND 20.
04:28:30	Green, Gene	DID THE COMMISSION DISCLOSED THE 12 07 INVESTIGATION?
04:28:37	Lukken, Walter L.	YES IT DID. WHAT DIFFERENCE WOULD THIS HAVE MADE?
04:28:49	Lukken, Walter L.	WE FELT, OBVIOUSLY WE NEVER WANT TO HINDER AN INVESTIGATION. BECAUSE WE WERE RECOGNIZING THAT THERE WERE CONCERNS ABOUT MANIPULATION IN THESE MARKETS, WHICH TOOK THE EXTRAORDINARY STEP OF INVESTIGATING THIS SINCE 2007.
04:29:07	Green, Gene	DO YOU AGREE THAT OIL HAS BEEN TRANSFORMED FROM A COMMODITY INTO A FINANCIAL ASSET? CERTAINLY, OUR ECONOMISTS SEE THE CORRELATION BETWEEN THE DOLLAR AND COMMODITY PRICES.
04:29:25	Green, Gene	TO YOU FEEL THAT AS A MATTER OF THE ECONOMIC POLICY, OUR GOVERNMENT SHOULD ALLOW COMMODITY SUCH AS OIL TO BE TREATED SUCH AS A SPECULATIVE ASSET OR SHOULD BE REGULATED TO ENSURE THAT ITS PRICE IS DICTATED BY SUPPLY DIVISION?
04:29:43	Lukken, Walter L.	OUR MISSION IS TO ENSURE THAT IT IS INFLUENCED BY SUPPLY AND DEMAND. SPECULATIVE INTERESTS ARE NOT ARTIFICIALLY DRIVING PRICES.
04:29:53	Green, Gene	ON JUNE 10, THE CFTC ANNOUNCED THAT IN LIGHT OF THE RISE IN PRICES, THE TASK FORCE WOULD LOOK AT THE IMPACT OF SPECULATORS, I KNOW IT IS ONLY A FEW WEEKS LATER, BUT HAS A TASK FORCE BEEN FORMED?
04:30:11	Lukken, Walter L.	WOULD TRY TO ASSIGN SOME OF THE THINGS TO DIFFERENT AGENCIES. WE WILL CONTINUE TO ME AND HOPEFULLY SOME OF THE FINDINGS WILL BE PART OF THIS REPORT ON SEPTEMBER 15.
04:30:22	Green, Gene	ARE YOU STILL RECEIVING DATA ON COMMODITY INVESTMENTS FROM THE INVESTMENT BANK'S?
04:30:33	Lukken, Walter L.	ARE WE RECEIVING THE DATA?
04:30:34	Green, Gene	YES.
04:30:35	Lukken, Walter L.	I THINK WE WILL START RECEIVING THAT TOWARDS MID JULY. WE HAVE SENT OUT THE REQUEST BUT HAVE NOT GOT BACK THE DATA YET.
04:30:45	Green, Gene	I APPRECIATE YOUR TIME, THANK YOU FOR APPEARING TODAY.
04:30:47	Stupak, Bart	MR. WALDEN?
04:30:52	Walden, Greg	THANK YOU FOR BEING HERE TODAY. AS THE CFTC HAVE THE AUTHORITY YOU NEED TO GO AFTER SOMEBODY IF THEY ARE ON ICE OR ONE OF THE OTHER EXCHANGES ADVERSELY AFFECTING OUR MARKET?
04:31:06	Lukken, Walter L.	IF THEY ARE TRADING ON ICE, I WOULD ASSUME THAT THAT IS AN ILLEGAL ACTION WE COULD GO AFTER THOSE U.S. PARTICIPANTS.
04:31:18	Walden, Greg	THE NEED ANY ADDITIONAL 44 MONTHS?
04:31:21	Lukken, Walter L.	FROM POLICING OF OF THOSE, I THINK THAT WHAT IS BEING CONSIDERED IS TO DEAL WITH WHAT WE HAVE TALKED ABOUT. I THINK WE'RE TRYING TO THINK THROUGH WHETHER WE HAVE THE LEGAL ABILITY TO GO THROUGH ALL THIS. WE CERTAINLY ADVISE THIS COMMITTEE THAT WE FEEL WE ARE MISSING SOMETHING.
04:31:37	Walden, Greg	WIN WITH THAT ADVICE COME TO THIS COMMITTEE?
04:31:40	Lukken, Walter L.	AS QUICKLY AS POSSIBLE IF WE FEEL THAT WE NEED SOMETHING.
04:31:45	Lukken, Walter L.	WE HAVE THE ULTIMATE AUTHORITY WHICH IS TO PULL THE NO ACTION LETTER. WE CAN SURE AND GET PEOPLE OUT OF THESE POSITIONS. WE HAVE QUITE A FEW -- QUITE A FEW TOOLS IN THIS AREA.
04:32:08	Walden, Greg	SOME FOLKS TESTIFIED THAT SPECULATION WAS GOING ON AND THAT IT COULD ACCOUNT FOR AS MUCH AS $60 A BARREL. WHAT IS YOUR ESTIMATE?
04:32:26	Lukken, Walter L.	IT CERTAINLY, MANIPULATION, IN OUR EXPERIENCE, IS A SHORT- TERM EFFECT. IF SOMEONE IS ABLE TO HOLD A POSITION, WE'RE SEEING THIS WITH TWO MARKETPLACES. THEY CANNOT TYPICALLY HOLD THOSE POSITIONS VERY LONG. I THINK THAT WHAT PEOPLE ARE CONCERNED ABOUT IS MORE OF A STRUCTURAL OF FACT. -- STRUCTURALLY FACT -- STRUCTURAL DEFECE YOU HEARD THE TALK TODAY ABOUT MARCH OF AF REQUIREMENTFECT. IS YOUR THOUGHT ABOUT MARGINAL REQUIREMENTS, ESPECIALLY IN SOME OF THESE TRADES?
04:33:16	Lukken, Walter L.	I THINK THAT MARGIN IS AN IMPRECISE TOOL. THERE ARE OTHER WAYS TO GET IT THROUGH TRANSPARENCY. MARGIN WOULD RAISE THE COST ON SOME OF THESE BUSINESSES SIGNIFICANTLY AND THEY COULD MOVE INTO OTHER MARKETS LIKE LONDON OR UNDERGROUND. I THINK THE OTHER CONCERN FOR US IS THAT THESE ARE MEANT TO PROTECT THE CLEARING HOUSE. WE WANT TO MAKE SURE THE THAT THAT IS A TARGETED PROTECTION. IF WE START GOING AROUND WITH THIS, I AM NOT SURE WHAT KIND OF PRECEDENT THIS WOULD SET.
04:34:05	Walden, Greg	TELL US ABOUT THE OTC. THE YOU HAVE MUCH AUTHORITY THERE?
04:34:11	Lukken, Walter L.	IF THERE IS A PROTEST THAT IN OUR MARKETS, AND WE SEE AN ANOMALY IN THEIR TRADING, WE ARE ABLE TO REACH THROUGH AND GET THAT DATA ON A CASE BY CASE BASIS AND DETERMINE WHETHER THERE ARE TRYING TO USE THE MARKET IN CONJUNCTION WITH THE FUTURES MARKET TO MANIPULATE THE PRICE OF A GIVEN COMMODITY.
04:34:30	Lukken, Walter L.	THE OVER-THE-COUNTER MARKETS ARE A VERY DIFFERENT MARKET. WE TRY TO ONLY GO INTO THE OVER- THE-COUNTER MARKET ON A NEED TO KNOW BASIS AND IT HAS BEEN AFFECTED.
04:34:52	Walden, Greg	WHEN IT COMES TO THESE GIANT INVESTMENT FIRMS COMING INTO THE MARKET, WE READ ABOUT THE CALIFORNIA EMPLOYEES' RETIREMENT SYSTEM, WHAT IMPACT ARE YOU SEEING AS A RESULT OF THAT, AND WHERE THESE FUNDS GO? WELL, I THINK THAT EVERYBODY CAN AGREE THAT THERE HAS BEEN AN INFLUX OF MONEY FROM PENSIONS AND ENDOWMENTS. THEY TYPICALLY GO THROUGH SWAP DEALERS. SWAP DEALERS ARE BRINGING A LOT OF DEALERS INTO THE MARKET. UNDER THE PORTFOLIO OF THIS -- DIVERSIFICATION, COMMODITIES HELP THROUGH THE RETURNS FOR THIS COMMODITY PENSION ORGANIZATIONS. I AM NOT SURE -- I AM SURE THERE ARE OTHER ASSETS IF CONGRESS FELT THEY WERE SOMEHOW ARTIFICIALLY DRIVING UP PRICES. SOME OF THE MOST VOCAL --
04:36:05	Walden, Greg	SOME OF THE MOST VOCAL FOLKS IN THIS ADMINISTRATION HAVE CALLED FOR CLOSING THE ENRON POLL. THAT WAS DONE, TO A LARGE EXTENT, SO TELL ME FROM YOUR STANDPOINT, THE CLOSING OF THAT LOOPHOLE, DID THAT GET DONE PROPERLY, IS THERE MORE TO BE DONE THERE? ARE THERE ADDITIONAL 40 SAID TO ME?
04:36:32	Lukken, Walter L.	IT IS FOR TO BE A VERY EFFECTIVE TOOL FOR US. OUR CONCERN IS THAT OUR ACT THE TAX PRICE DISCOVERY PROCESSES. IT MAY OCCUR IN THE FUTURES MARKET AND IT MAY OCCUR IN THE OVER-THE-COUNTER MARKET. THAT IS WHERE WE DRAW THE LINE. THAT IS WHEN THE PUBLIC INTEREST ARISES AND WE NEED ADDITIONAL AUTHORITIES. THAT IS WHAT PRICE DISCOVERY BEGINS TO OCCUR. THIS HAS BEEN AN EFFECTIVE WAY TO THINK ABOUT THIS. WE ARE HOPEFUL TO GET THOSE AUTHORITIES IN PLACE AS QUICKLY AS POSSIBLE.
04:37:13	Walden, Greg	THANK YOU, MR. CHAIRMAN.
04:37:19	Stupak, Bart	MR. BURGESS FOR QUESTIONS?
04:37:26	Burgess, Michael	MR. BURKE, I'M SURE YOU WERE HERE WHEN THE FIRST PANEL TESTIFY THIS MORNING. MR. MASSE TO TALK ABOUT HIS FOURTH STEP PLAN TO BRING THE PRICE OF CRUDE DOWN TO ITS MARGINAL COST OF $60 TO $7. YOU HEARD TESTIMONY FROM OTHER INDIVIDUALS THAT THIS WAS PROBABLY THE MOST BANG FOR THE BUCK. THIS WAS A STEP OF ESTABLISHING LIMITS. DO YOU HAVE THE AUTHORITY TO DO WHAT IS OUTLINED BY MR. MASTERS? PUTTING POSITION LIMITS ON SPECULATORS?
04:38:17	Lukken, Walter L.	THERMO CINCY AUTHORITY, WHICH COULD PUT LIMITS ON ANY TYPE OF PARTICIPANTS.
04:38:25	Burgess, Michael	THE TESTIMONY THAT WE HEARD THIS MORNING WAS PRETTY POWERFUL. THAT USING THIS TYPE OF AUTHORITY WITHIN A VERY BRIEF PERIOD OF TIME, WE COULD BRING THE COST OF CRUDE OIL TO WELL OVER $100 A BARREL. WE SEE HOW THE ECONOMY IS SUFFERING. WE SEE HOW OTHER FACTORS ARE SUFFERING.
04:38:53	Lukken, Walter L.	I THINK THAT WE CURRENTLY HAVE CONTROLS AND POSITION LIMITS ON SPECULATORS AND ACCOUNTABILITY LEVELS OUTSIDE THE MONTH. I THINK THAT WHAT WAS IN THAT CHART, THEY SHOWED THE SWAP DEALERS. THOSE PEOPLE THAT WERE AGGREGATING LOTS OF POINTS AND PUTTING THEM INTO THE FUTURES MARKETS. WE'RE WERE TO TRY TO GET BETTER INFORMATION FROM THEM, BUT WE CANNOT PUT LIMITS OR THINK ABOUT LIMITS UNTIL WE GET BETTER. ORA PERMISSION FROM THOSE PARTICIPANTS. WE WANT TO ALSO MAKE SURE THAT IF THEY ARE EVADING LIMITS, THAT IS SOMETHING THAT WE SHOULD GO AFTER. IT COULD BE THAT A LOT OF THESE ARE BELOW LIMITS. WE JUST NEED BETTER DATA BEFORE MAKING ANY HARD AND FAST DECISIONS ABOUT THAT.
04:39:45	Burgess, Michael	WE HAD A HEARING IN A PROBLEM -- IT PROBABLY WAS NOT AS IT IN DEPTH AS THIS MORNING'S. WHAT CAN WE EXPECT BEFORE YOU FEEL THAT YOU HAVE THE DATA YOU NEED TO INVOKE THOSE EMERGENCY PROVISIONS TO BRING THE PRICE OF CRUDE OIL DOWN BY 50%?
04:40:07	Lukken, Walter L.	CERTAINLY, THESE ARE COMPLEX SITUATIONS WE'RE GOING THROUGH. THESE ARE TAILORED CONTRACT FROM CUSTOMERS AND SWAP DEALERS. WE'RE TRYING TO PUT THEM IN EQUIVALENT TERMS FOR THE FUTURES MARKET. WE ARE A SMALL STAFF TRYING TO DO THIS WHILE WE REGULATE THE MARKETS. WE'RE DOING THIS AS FAST AS WE CAN TO GET THE INFORMATION TO CONGRESS THAT THEY NEED TO MAKE DECISIONS.
04:40:37	Burgess, Michael	I APPRECIATE THE CONDITIONS UNDER WHICH TO WORK. WHEN YOU HEAR PEOPLE TALKING ABOUT OPENING THE STRATEGIC RESERVES, MAYBE THIS IS ONE OF THOSE TIMES. I WOULD JUST ADMIT THAT IF YOU HAVE THAT AUTHORITY UNDER EMERGENCY PROVISIONS, THAT THE STEP BE TAKEN OF LIMITING THE SPOT MARKET MIGHT BE A LESS DRASTIC STEP THEN DRAWING DOWN THE STRATEGIC PETROLEUM RESERVE. WE PROBABLY HAVE A GREAT RESERVE FOR SPECULATORS, BUT IF WE DID THE RESERVE, WE WOULD HAVE NOWHERE ELSE TO GO BUT ANWAR.
04:41:20	Burgess, Michael	REGARDING YOUR ABILITY TO DO YOUR JOB, HOW DO WE STAND? YOU NEED ITAN ADDITIONAL $150 MILLION?
04:41:35	Lukken, Walter L.	NO, NO, $30 MILLION.
04:41:44	Burgess, Michael	WHAT IS THE PRACTICAL EFFECT OF GETTING THIS IN CONGRESS AND NO ONE WILL TELL YOU THAT WE ARE ONE TO FINISH IN APPROPRIATIONS BILLS THAT BY SEPTEMBER 30. -- BILL BY SEPTEMBER 30. WE'RE PROBABLY NOT WHEN A FUND YOU ANY ADDITIONAL MONEY FOR AT LEAST SIX OR SEVEN MONTHS AND MAYBE EVEN LONGER THAN THAT. IS THAT WERE TO BE A PROBLEM?
04:42:08	Lukken, Walter L.	A HUGE PROBLEM. THIS IS SOMETHING THAT WE HAVE BEEN STRAINING UNDER THE PRESSURE. THE MARKET ITSELF REQUIRES US TO GET MORE STAFFING. THIS IS SOMETHING THAT I KNOW WE'RE NOT WANT TO BE ABLE TO BRING UP TO SEE -- BRING UP TO SPEED IT IMMEDIATELY. WE NEED TO MAKE SURE THAT IT HAS THE PROPER STAFFING TO DO ITS JOB. WE CAN REPORT TO CONGRESS WITH CERTAINTY THAT IT IS OVERSEEING THESE MARKETS.
04:42:44	Burgess, Michael	I APPRECIATE YOUR ATTENTION TO THE LONG TERM DETAILS. KENYACANYO YOU GIVE US THE DIFFERENCE IS BETWEEN ALL THE DIFFERENT LOOPHOLES?
04:43:10	Lukken, Walter L.	THE ENRON LOOPHOLE, IT WAS MEANT TO, OVER TIME, EXEMPT COMMERCIAL MARKETS. THESE POSITIONS BECAME MORE AND MORE PRICE DISCOVERY VEHICLE SEVEN NEEDED AUTHORITIES TO GO ALONG WITH THAT. WHAT IS OCCURRING IN LONDON AND WHAT WE HAVE ANNOUNCED TO THE FISA IN LONDON, THESE ARE FULLY REGULATED MARKETS. WE WERE TRYING TO WORK WITH THE BRITISH AUTHORITIES TO GET THE PROPER PERMISSION FROM THEM AND TO HARMONIZE THE INFORMATION AND THE POSITION ACCOUNTABILITY AND LIMITS ON THOSE MARKETS. WE HAVE ALREADY TAKEN STEPS TO ADDRESS THAT. I THINK THAT WILL BE HELPFUL IN THE FUTURE. AS FAR AS THE SWAP EXEMPTION, THAT IS SOMETHING THAT HAS BEEN IN PLACE SINCE 1991. IT IS SOMETHING THAT WAS URGED TO CONSIDER EXEMPTING THESE TYPES OF TRANSACTIONS. THIS IS SOMETHING THAT THE COMMISSION TOOK TO THEIR. THIS IS SOMETHING WE ARE WE ADDRESSING -- WE ARE READDRESS AND. IF IT DOES NOT, WE WILL MAKE PROPER RECOMMENDATIONS. BUT THE LANGUAGES COLBY IN RUN LOOPHOLE. THAT WAS PASSED IN THE COMMODITY FUTURES MODERNIZATION ACT IN OCTOBER 2000 TO. -- 2002. DID DID DR. THE LANGUAGE CHANGE BY THE TIME ON IN THIS -- BY THE TIME THE OMNIBUS CAN 3. WAS DEALING WITH THE SAME FROM WHAT THIS COMMITTEE SUBMITTED?
04:45:18	Lukken, Walter L.	I BELIEVE IT WAS THE SAME.
04:45:20	Burgess, Michael	SO THIS WAS NOT LANGUAGE THAT WAS ALL ABOUT THE LAST MOMENT?
04:45:27	Lukken, Walter L.	THIS WAS PUT INTO THE BILL, AND I THINK IT WENT THROUGH THIS COMMITTEE, THE AG COMMITTEE, AND THEN CAME TO THE HOUSE FLOOR WITH A STATEMENT OF ADMINISTRATIVE POLICY.
04:45:39	Burgess, Michael	SERVICE WOULD HAVE BEEN LANGUAGE THAT WAS QUOTED BY IT BE INDIVIDUALS THAT VOTED IAIE?
04:46:04	Inslee, Jay	THERE ARE FIVE THINGS THAT WILL TALK ABOUT. CLOSING THE THREE LOOPHOLES, THE THREE HORSEMEN OF THE APOCALYPSE, IT MEASURES MARKET REQUIREMENTS AND THE FIT MEASURES TO RESTRICT THAT WHICH TRADERS WOULD HAVE. I WOULD LIKE TO ADDRESS EACH ONE OF THOSE ACTIONS IN CUMMING WHICH ONES WOULD REQUIRE SOME INTERNATIONAL ACTION TO HAVE SOME SIGNIFICANCE OF FACT, WHICH COULD BE DONE JUST BY UNITED STATES AND STILL HAVE CONSIDERABLE FLAK.
04:46:44	Inslee, Jay	WHICH ONES WOULD REQUIRE CONGRESSIONAL ACTION? COULD YOU ADDRESS EACH OF THOSE FIVE?
04:46:57	Lukken, Walter L.	I THINK THAT THE FIRST FORUM WAS PASSED AS PART OF THE FARM BILL. WE ARE ADDRESSING THE 180 DAYS TO GET OUT A WILL OR NOT. THE SECOND ISSUE DEALS WITH FOREIGN BOARDS OF TRADE. WE HAVE STATED THAT WE ARE NOW GETTING REPORTS FROM THE FOREIGN BOARD OF0 TO THE UNITED STATES VOTE THEM LONDON AND THAT WILL BE HELPFUL. WE CAN DO THAT HAD BEEN DESTROYED OF THE. BUT CERTAINLY, THAT HAS BEEN FLOATING AROUND. THAT WOULD BE HELPFUL, IN MY VIEW. THERE IS DEALING WITH SWAPS. THIS IS AN ISSUE THAT WE HAVE ASKED FOR ADDITIONAL REFORMATION ABOUT A MONTH AGO. WE NEED BETTER INFORMATION FROM SWAPS TO UNDERSTAND WHAT TYPE OF TRANSACTIONS ARE COMING ONTO OUR MARKETS. WE HOPE TO GET THAT INFORMATION, AND THAT INCLUDES SWAP DEALERS AND THE TOP OF INFORMATION GOING THROUGH THOSE SWAP DEALERS. IN MARGIN, WE DO HAVE AUTHORITY TO RAISE MARGINS ON EXCHANGES. I DO BELIEVE WE ALSO HAVE AUTHORITY TO RAISE OR IMPLEMENT POSITION LIMITS AS WELL.
04:48:28	Inslee, Jay	SO ALL FIVE OF THOSE ACTIONS, IT SOUNDS LIKE IT WOULD BE HELPFUL TO HAVE THIS IN THE ICE SITUATION, BUT YOU THINK HE WOULD HAVE AUTHORITY TO TAKE ACTION NOW, THEN? AND WE HAVE. WE ARE TAKING ADMINISTRATIVE ACTION ON THE FIRST THREE.
04:48:49	Lukken, Walter L.	DO YOU HAVE INTENTIONS ON MARGINS ARE POSITIONS? AS FAR AS THE IMMERSION, IS MEANT TO PROTECT THE CLEARING HOUSE AND COVER A ONE DAY PRICE MOVE. I THINK THERE WERE CONCERNS THAT THIS COULD DRIVE BUSINESS ELSEWHERE. IT WOULD BE DIFFICULT TO GET IT BACK. THERE IS NO REASON THAT THE BENCHMARK HAS TO BE YORK. IT COULD BE ELSEWHERE IN NEW YORK ETHNIC IT WOULD BE TERRIBLE IF WE LOST THE OVERSIGHT OF THOSE MARKETS TO OTHER PLACES. RIGHT NOW, IT IS IN NEW YORK, AND WE GET ALL THE INFORMATION FROM LONDON. WE'RE SEEING THE ENTIRETY OF THE CRUDE OIL BUT ELATED MARKETPLACE. BUCS ISN'T THAT ARGUMENT THAT IT WOULD DRIVE PEOPLE OFFSHORE, IS IT REALLY THE SAME IN EQUITIES AND STOCKS?
04:49:44	Inslee, Jay	WE HAVE A VIBRANT MARKET HERE. IS IN A VIRTUALLY THE SAME? WE HAVE ATTRACTIONS TO BE IN THIS MARKET FOR A VARIETY OF REASONS. MARGIN REQUIREMENTS HAVE NOT DESTROYED OUR CAPITAL MARKETS HAVE THEY?
04:50:02	Lukken, Walter L.	NO, BUT REGULATION HAS BEEN A CONCERN. EXCESSIVE REGULATION IS DRIVING BUSINESS ELSEWHERE. THE BLOOMBERG SCHUMER REPORT SAYS THAT BUSINESS IS GOING TO LONDON.
04:50:15	Inslee, Jay	YOUR MESSAGE TESTING REDUCING MARGIN REQUIREMENTS ON THE EQUITIES MARKETS BECAUSE WE ARE LOSING ALL THIS BUSINESS?
04:50:20	Lukken, Walter L.	ABSOLUTELY NOT. WE JUST HAVE TO BE MINDFUL THAT IT DOES HAVE AN AFFECT.
04:50:26	Inslee, Jay	IF WE ARE MINDFUL THAT WE MAY BE ABLE TO REDUCE OIL PRICES BY 30%-50%, JUST BY REDUCING REQUIREMENTS, WOULDN'T THAT BE A TRADE-OFF?
04:50:38	Lukken, Walter L.	I DID NOT THINK THAT WOULD BE THE EFFECT OF RAISING MARGINS.
04:50:41	Inslee, Jay	EVEN IF IT IS A HALF A PERCENT, IT WOULD PROBABLY OUTGUN THE POTENTIAL LOSS OF A CAPITAL MARKET OVERSEAS. WOULDN'T IT?
04:50:54	Lukken, Walter L.	THINK OTHER ACTIONS WOULD BE MORE EFFECTIVE.
04:50:56	Inslee, Jay	WHAT WOULD THOSE BE?
04:50:58	Lukken, Walter L.	GETTING BETTER DATA TO THE PUBLIC ABOUT WHAT IS HAPPENING OVERSEAS AND WHAT IS HAPPENING IN THE SWAP MARKETS. WE NEED TO ENSURE THAT NONE OF THESE MARKETS ARE BEING INVADED.
04:51:16	Inslee, Jay	AS ONE CONGRESSMAN, I HOPE YOU LOOK AT THE TITANIC AFFECT OF EVEN SMALL CHANGES IN THE PRICE OF OIL. THE BIG SAVINGS IS IN OIL PRICES. THANK YOU.
04:51:37	Stupak, Bart	MR. DINGELL, FOR QUESTIONS?
04:51:44	>>	I'M CURIOUS. WHAT IS A HEDGER A HEDGER IS SOMEBODY WHO HAS PRICE RISK TO THE UNDERLYING COMMODITY.
04:51:57	>>	WHAT OTHER CATEGORIES ARE THERE IN THE FUTURE MARKETS?
04:52:02	Lukken, Walter L.	WHAT OTHER CATEGORIES?
04:52:05	>>	YOU HAVE HEDGERS IN THERE AND THEN YOU HAVE OTHER FOLKS.
04:52:15	Lukken, Walter L.	WE CURRENTLY BREAKDOWN COMMERCIAL AND NON-COMMERCIAL. IN THE COMMERCIAL CATEGORY, WE HAVE BOTH. YOU HAVE SOMEBODY WHO IS PHYSICALLY IN THE MARKET.
04:52:29	>>	AN AIRLINE COMPANY IS THE HEADER?
04:52:33	Lukken, Walter L.	WRIGHT.
04:52:35	>>	THAT IS BECAUSE THEY HAVE AN INTEREST IN THE COMMODITY THAT THEY ARE INTERESTED AND.
04:52:44	>>	DOES A SPECULATOR HAVE THAT?
04:52:54	Lukken, Walter L.	COMMERCIALS ARE TYPICALLY AN INTEREST IN THE PROCESS.
04:52:59	>>	DID IT EVER RECEIVE A COMMODITY?
04:53:02	Lukken, Walter L.	CERTAINLY COMMERCIALS MIGHT.
04:53:07	>>	WHO IS THE GUY THAT NEVER RECEIVES THE COMMODITY? IS HE A SPECULATOR?
04:53:15	Lukken, Walter L.	TYPICALLY, THEY DO NOT RECEIVE A COMMODITY.
04:53:20	Lukken, Walter L.	TO A LOT OF THE SWAP DEALERS CANNOT RECEIVE.
04:53:26	>>	WHAT IS THE DIFFERENCE WITH WILL SWAP DEALER AND A SPECULATOR?
04:53:32	>>	NEITHER ONE RECEIVES A COMMODITY?
04:53:37	Lukken, Walter L.	A SWAP DEALER BRINGS A LOT OF THINGS TO THE MARKET.
04:53:40	>>	HE DOESN'T EVER RECEIVE THE COMMODITY?
04:53:43	Lukken, Walter L.	MANY OF HIS CLIENTS DID.
04:53:50	>>	WHAT CLIENTS DO? WHAT IS THIS WHAT WE LIVE YOUR TALKING ABOUT? IS A GOLDMAN SACKS?
04:54:04	Lukken, Walter L.	UNITED AIRLINES IS A CLIENT OF MORGAN STANLEY. THEY MANAGE ALL OF THEIR RISK MANAGEMENT FOR FUEL.
04:54:14	Lukken, Walter L.	THEY DID.
04:54:20	>>	BUT THEY NEVER RECEIVED ANY OIL. THE THEY?
04:54:24	>>	KNOTT THE PENSION FUNDS. BUT SO WHAT IS THE EFFECT OF ALL THESE FOLKS BEING IN THERE AND NOT EVER RECEIVING OIL. BY RAISING COSTS OR LOWERING COSTS? WHAT ARE THEY DOING? THAT IS SOMETHING THAT WE ARE TRYING TO FIND OUT.
04:54:43	>>	IT USED TO BE THAT YOU HAD A FORM THAT HE CIRCULATED EVERY MONTH AND WENT TO EVERYBODY IN THE FUTURES BUSINESS. THE YOU REMEMBER THAT?
04:54:53	Lukken, Walter L.	YES.
04:54:56	>>	AND AS THEY RECEIVED THESE FORMS, BUT WROTE IN THE CORNER THAT THEY WERE A HEDGER OR THAT THEY WERE A SPECULATOR, RIGHT?
04:55:08	>>	YOU'VE NOT HAVE THE CHECK THAT ANYMORE, DO YOU?
04:55:14	Lukken, Walter L.	I THINK THAT THEY STILL DO,.
04:55:20	>>	CAN YOU TELL ME THAT THEY ARE AND THAT THEY DO?
04:55:28	Lukken, Walter L.	THE CURRENTLY STILL CHECK THE BOX.
04:55:33	>>	SO DO ONE OF THESE COMMERCIALS WHAT GUYS, WHICH BOXES TO CHECK?
04:55:42	Lukken, Walter L.	OUR POLICY SINCE 1991 IS THAT SWAP DEALERS OUR COMMERCIAL BUSINESSES TRYING TO HEDGE THEIR UNDERLYING ASSET EXPOSURE.
04:55:53	>>	HOW DOES THIS HAVE IS THE UNDERLYING EXPOSURE. THERE ARE A SPECULATOR.
04:56:08	>>	YOU TOLD ME THAT SOMEBODY WHO DID NOT RECEIVE THE IT HEDGER IS A SPECULATOR.
04:56:14	Lukken, Walter L.	YOU'VE PROBABLY TURN THEM AS SPECULATORS.
04:56:18	>>	IT IS INTERESTING TO NOTE THAT GOLDMAN SACKS DOES NOT RECEIVE BINNACLES WORTH OF OIL, DO THEY?
04:56:27	Lukken, Walter L.	NO THEY DO NOT.
04:56:33	>>	SO, WHAT I AM TRYING TO UNDERSTAND IS HOW MANY SPECULATORS ARE IN THE MARKET AND HOW MANY HEDGERS ARE IN THE MARKET?
04:56:42	Lukken, Walter L.	I UNDERSTAND THAT GOLDMAN'S FAX X -- GOLDMAN SACKS DOES HAVE THE ABILITY.
04:56:50	>>	HUDDY KNOW THE DIFFERENCE?
04:56:54	Lukken, Walter L.	UNDER CURRENT -- WE HAVE ABOUT 36% OF THE OIL MARKET WITH TRADITIONAL SPECULATORS AND WE HAVE ABOUT 32% @ DEALERS, AND THE REST IS COMMERCIAL.
04:57:09	>>	HOW MUCH IT IS A SPECULATIVE AFFECTING THE MARKET?
04:57:13	>>	THERE ARE A LOT OF SPECULATORS IN THERE. HOW MUCH IS IT AFFECTING THE MARKET?
04:57:21	Lukken, Walter L.	WE'RE LOOKING AT SUPPLY AND DEMAND.
04:57:28	>>	I AM JUST A POOR POLISH LAWYER. I'M ASKING A SMART FELLOW TO TELL ME WHAT IS GOING ON. HOW DO THESE SPECULATORS AFFECT THE MARKET?
04:57:39	Lukken, Walter L.	DEBRIS INFORMATION TO THE MARKET AND IT IS OFTEN VERY HELPFUL.
04:57:42	>>	ARE THEY RAISING THE MARKET PRICE? WHAT ARE THEY DOING?
04:57:49	Lukken, Walter L.	HALF THE TIME, THEY ARE ON THE SHORT SIDE OF THE MARKET. WHAT ARE YOU TELLING ME THIS IS CANCELING OUT?
04:57:58	Lukken, Walter L.	ALL LOT OF POSITIONS ARE.
04:57:59	>>	DO YOU KNOW THAT?
04:58:00	Lukken, Walter L.	YES WE DO.
04:58:06	>>	HOW MUCH IN THE WAY OF THESE FUTURES CONTRACTS ARE THERE FOR OIL, AND HOW MUCH OIL IS THERE MOVING TO THE MARKET. DO THEY CANCEL EACH OTHER OUT? DO YOU HAVE THE SAME NUMBER OF BARRELS OF OIL MOVING THROUGH THE MARKET THAT YOU HAVE CONTRACTS FOR THE MOVEMENT OF OIL?
04:58:36	Lukken, Walter L.	THE FUTURES MARKET ARE LARGER THAN THE OTHER MARKETS.
04:58:44	>>	ARE THESE ENORMOUSLY LARGER VOLUMES OF SWAPS AND OTHER THINGS THAT YOU HAVE GOING ON THERE, THEY AFFECTING THE MARKET? THIS IS ABOUT 13 TIMES AS MUCH AS YOU HAVE BEEN NO WAY OF OIL. IS THAT RIGHT? HOW MANY BILLION BARRELS IS MOVING THROUGH THE SWAP MECHANISM AND HOW MUCH IS MOVING THROUGH THE PIPELINE? WAS THE DIFFERENCE? IT IS ABOUT 13 TIMES, ISN'T IT?
04:59:27	Lukken, Walter L.	THE FUTURES MARKET DOES NOT AFFECT THE UNDERLYING SUPPLY.
04:59:31	>>	I'LL GET TO THIS MEASURE AND WHEN I AM READY. WE'RE TALKING ABOUT SPECULATING. SPECULATING IS NOT A RISK MANAGEMENT TOOL. IT IS A COOL WHEREBY YOU MAKE MONEY. OR LOSE YOUR SHIRT.
04:59:45	>>	THAT IS CORRECT. WHAT IS THE RELATIONSHIP. HOMONYM BARRELS OF OIL COMING TO THE PIPELINE AND HOW MANY ARE MOVING TO THE CONTRACTS -- MOVING THROUGH THE CONTRACTS.
05:00:06	Lukken, Walter L.	I THINK IS ABOUT 13 TIMES THE PHYSICAL.
05:00:09	>>	SO WE HAVE A SITUATION WHERE YOU HAVE AN ELEPHANT WHICH IS THE SPECULATION, AND YOU HAVE THE OIL WHICH IS THE FLEA ON THE BACK OF THE ELEPHANT. THE FLEA WANTS TO GO SOMEWHERE, BUT HE CAN ONLY GO ON THE ELEPHANT. THE ELEPHANT CAN GO ANYWHERE HE WANTS, BUT CHIEFLY HAS TO GO ALONG. BUT THE FLEET HAS TO GO ALONG. -- BUT THE FLEETA HAS TO GO ON. WHO COMES OUT AHEAD AND WHO GETS THEM? HOW DOES THE CONSUMER COMES OUT OF THIS WHEN ALL OF THESE WONDERFUL FOLKS WITH BILLIONS OF DOLLARS IN BACKING AND EXEMPTION FROM YOU GOOD HEARTED FOLKS AND CFTC, HOW IS THE ORDINARY CITIZEN, AND HOW IS OIL PRICE AND HOW IS THE WELL-BEING OF THIS COUNTRY GOING TO PROSPER? IF YOU LOOK, WHEN YOU GAVE AT GOLDMAN SACHS EXEMPTION, YOU HAD A VERY SMALL NUMBER OF CONTRACTS MOVING ON THE SPECULATIVE PART AND YOU HAD A LOT THAT WERE MOVING ON THE PART OF THE MARKET WHICH RELATED TO THE QUESTION OF ACTUALLY MANAGING SUPPLY AND MANAGING PRICE OR SUPPLY. HOW HAVE THOSE NUMBERS CHANGED?
05:01:47	Lukken, Walter L.	THEY HAVE INCREASED.
05:01:48	>>	THEY HAVE INCREASED. HOW HAVE THEY INCREASE?
05:01:53	Lukken, Walter L.	I THINK THAT OVER THE LAST THREE YEARS IN PARTICULAR, WE HAVE SEEN AN INCREASE IN SPECULUM TRADING FROM ABOUT 34% TO ABOUT 36%. I WILL R IN JANUARY 2000, HIS LETTERS WERE 63 PERCENT. TODAY, SPECULATORS ARE 71% AND PHYSICAL HEDGERS ARE 29 PERCENT. THAT IS 2008 VS JANUARY 2000. WHAT CAN YOU TELL ME? HOW DOES THIS IMPACT MARKET PRICES? YOU HAVE IN THE IDEA? IN 25 WORDS OR LESS, WHAT DO YOU KNOW THAT THIS IS DOING TO THE MARKETPLACE?
05:02:52	Lukken, Walter L.	THE CFTC WANTS TO KEEP THEM FROM OF THESE TRENDS, AND WE HAVE ASKED FOR ADDITIONAL INFORMATION.
05:02:58	>>	YOU ARE DOWN THERE REGULATING THE MARKET. YOU ARE FROM THE CFTC. THE CFTC IS SUPPOSED TO REGULATE THIS MARKET. A CURIOUS CIRCUMSTANCE, I WAS IN THE HOUSE WHEN A MEMBER OF CONGRESS FROM IOWA CREATED YOUR ENTITY. HE WAS TOLD TO SEE TO IT AND THAT FARMERS, WHO THEN WERE BEING SCREWED, AND THE CONSUMER, WHO WAS BEING SCREWED, OR WANT TO BE PROTECTED FROM THESE FOLKS IN THE FUTURES MARKET. NOW WE FIND HOW THESE FOLKS FIGURED OUT HOW NOT JUST TO SCREW THE FARMERS, AND THE CONSUMERS, BUT IT FIGURED OUT HOW TO SCREW THE FARMERS WITH A WHOLE NEW PRODUCT. WHAT HAVE YOU DONE TO LOOK AT THIS TO SEE WHAT THE COST IS? DO NOT TELL ME YOU HAVE A STUDY. THESE PRICE INCREASES HAVE BEEN GOING ON. YOU HAVE BEEN SITTING IDLY BY, WATCHING TO SEE WHAT WAS GOING ON, OR AT LEAST YOU SO TELL ME, BUT WHAT HAVE YOU FOUND? HOW DO THESE NUMBERS THAT WE'RE DISCUSSING THE FACT HOW PRICES ARE MOVING?
05:04:19	Barton, Joe	MR. CHAIRMAN, OUR DISTINGUISHED GERMAN HAS ALREADY DOUBLED HIS TIME. I HOPE THIS WILL BE HIS LAST QUESTION. I AM OVER MY TIME, BUT IT IS A WONDERFUL QUESTION.
05:04:33	Barton, Joe	WE HAVE THREE MORE WITNESSES ON THE FOURTH PANEL.
05:04:38	>>	I WILL WRITE YOU A LETTER. I ASK YOU, MR. CHAIRMAN, THAT I HAVE PERMISSION TO HAVE THAT LETTER INSERTED INTO THEIR RECORD. I AM SURE THAT THE CFTC WILL BE DELIGHTED TO RESPOND AND PERHAPS IN A FACTUAL WAY.
05:04:57	Lukken, Walter L.	I LOOK FOR