Congress must end oil price gaming

By Bob Fornaro

Excessive oil speculation, which sent gas prices spiraling and helped choke off economic activity last year, is now threatening to strangle the fragile beginnings of a turnaround. A new run-up in oil would put a chill on the entire economy, taking billions out of the pockets of American consumers and companies.

Today, there isn’t much we could do to prevent another oil price spike. Tomorrow, however, is another matter — if Washington takes action now to stop the excessive speculation largely responsible for driving up oil prices and market volatility.

Oil prices, as we’ve all seen, have fluctuated wildly over the last year and a half. After hitting a record high of $147 a barrel in July 2008, oil dropped to just $32 in December. Prices surged again this year, hitting $72 in June and reaching another 2009 high last month.

Spiking oil prices are bad news for just about everyone, including transportation companies. Although airlines do what we can to limit the near-term impact of rising oil costs, price spikes hurt our companies, our customers and our employees.

And there is a snowball effect. Low-fare airlines help business and leisure customers travel safely, efficiently and affordably. Our industry, in turn, intersects with a host of others — from lodging to rental cars to tourism — and acts as a catalyst for broad-based economic activity.

Higher fuel prices also hit the trucking industry hard, making it more costly to transport products and driving up both wholesale and consumer prices.

An oil price spike, then, doesn’t just hurt transportation. In fact, experts estimate that every time gas prices increase a penny, $1.5 billion disappears from the wallets of the American people. U.S. companies, meanwhile, have less money to invest in new innovations and new employees.

By contrast, the people who benefit most when oil prices surge are speculators, who buy and sell oil again and again without any intention of taking delivery. Today, excessive speculation — which has the power to boost the price you pay for gasoline and almost everything else — is largely unregulated and controlled by a small number of large traders.

Excessive speculation has disconnected the price of oil from the honest market forces of supply and demand. After all, last year’s oil spike — and the madcap roller coaster that followed — came at a time when supplies were generally rising and demand falling.

To keep our economy moving, we need reforms that end excessive speculation by increasing the transparency of futures markets, placing common-sense limits on speculation and putting a halt to unregulated trades.

Washington, for its part, is at least talking about doing something. In July, Energy Secretary Steven Chu blamed speculation for “yo-yoing [oil prices] that really have nothing to do with fundamental supply and demand numbers.”

Chairman Gary Gensler of the Commodity Futures Trading Commission, which has held hearings on the issue, said that he favored position limits on all commodities futures, including oil. (Such limits have long existed on agricultural commodities.)

In the long run, America needs a balanced, comprehensive energy policy that includes conservation and more emphasis on domestic and alternative energy sources. In the near term, the most powerful thing we can do to keep oil broadly affordable is to end runaway speculation.

Together with our leaders in Washington, we can stop the out-of-control oil speculation that threatens our fledgling recovery and bright economic future. When we do, we’ll help keep billions of dollars where they belong: in the hands of the American people, not the bulging bank accounts of speculators.

Bob Fornaro is the chairman, president and CEO of AirTran Airways.