You might not think it possible for a single company to control 11 percent of the oil market — but that's exactly what happened earlier this year.
We now know that a firm headquartered in Switzerland, named Vitol, controlled 57.7 million barrels of oil on NYMEX until June 6. To put that in perspective, this translates to almost three times as much oil as the United States consumes in a single day.
Why is this important? Because this trading company might have been able to singlehandedly drive prices higher for their gain, without anyone's knowledge or oversight.
It's clear that record oil prices this summer — as high as $147 a barrel — have seriously impacted our nation's economy. It's costing $70, $80, $90 or more to fill gas tanks. Millions of Californians are hurting. And there's no lasting relief in sight.
Simply put, our nation's energy markets are broken. And unfettered speculation is a major part of the problem. Some say it's responsible for as much 25-40 percent of this summer's price increase.
Vitol's lopsided presence on NYMEX illustrates the dangers of a new speculative trend in energy trading, called the "swaps loophole." This loophole has allowed large investors to buy and sell oil contracts through swaps dealers, without ever having to take delivery or use the oil.
To this point, these investors have bet that oil prices will go up — and go up they have.
The Commodity Futures Trading Commission (CFTC), which oversees oil markets, has reported that a small group of swaps dealers account for roughly 81 percent of oil futures trading on NYMEX. And this business has grown from $13 billion to $317 billion in the past five years alone.
The problem is this: The CFTC currently exempts these swaps dealers from speculation limits on exchanges.
That's how Vitol was able to control such a large percentage of the marketplace, without anyone ringing the alarm — at least until the CFTC finally decided to step in and reclassify Vitol's commercial trading status, from a company that legitimately required oil for its daily business to a speculator.
Congress must act. We must close the swaps loophole immediately.
That's exactly why I'm working with my Senate Democratic colleagues on legislation to require transparency and speculation limits for all energy contracts executed through swaps dealers. It is part of a larger legislative package designed to bring transparency, monitor for fraud and manipulation, and limit speculation in all energy markets.
Unfortunately, the Republicans have already filibustered this critical package three times this year, so we have been unable to secure the 60 votes required to proceed to a vote so far.
It is my hope that senators from both sides of the aisle can come together and pass this bill soon. We can no longer afford inaction. We must have effective and rigorous oversight of our nation's energy markets.
The good news is that we've already taken an important step toward fixing America's broken energy markets when we closed the notorious "Enron loophole" in May of this year.
This new law, which I authored with Sen. Olympia Snowe, R-Maine, and others, creates oversight for all electronic energy futures markets — markets that had operated in the dark and without federal regulation since 2000. The law also imposes speculation limits and establishes clear anti-fraud and anti-manipulation authority for the CFTC for all electronic energy trading.
But this is just one piece of the puzzle. We need to take every step we can to protect all energy markets — whether electronic, over-the-counter, or on overseas exchanges — from rampant speculation, fraud and manipulation.
At the same time, we can no longer afford the continued cost of having our nation's economic health and national security so closely tied to the price of a barrel of oil.
We must look for ways to break our addiction to fossil fuels. We need to think long term.
We cannot try to drill our way out of this energy crunch. Instead, we need tax incentives to spur the development of all alternatives — more fuel efficient vehicles, energy efficient biofuels, wind and solar, and greener construction for homes and office buildings.
There's no time to waste.