Disagreement on cause of food and oil prices

The Senate Committee on Homeland Security and Governmental Affairs met to discuss financial speculation in commodity markets and to hear statements as to whether or not investors and hedge funds are causing inflated food and energy prices. Witnesses discussed their findings on the influence of speculation on the global rise in commodity costs.

Michael W. Masters of Masters Capital Management, LLC., stated that a lack of lines at the gas pump and the availability of food on shelves, a clear indication of supply, does not warrant an increase in prices, an increase that would suggest greater demand. In addition, Masters refuted the suggestion that oil prices have increased due to increased demand from developing states such as China. Masters cited a Department of Energy report which said that Chinese demand for oil has increased by 920 million barrels over the last five years and compared that to increase in demand from index speculators, an increase of 848 million. According to Masters, this increase is not responsible for a 183% increase in oil prices in the last five years.

Thomas Erickson, the chairman of the Commodity Markets Council, mentioned five reasons as the cause of price levels: strong economic growth in China and India, increased demand, reduced yield due to weather events, export restrictions, and the weakening U.S. dollar. Jeffrey H. Harris, the chief economist of the Commodity Futures Trading Commission (CFTC,) said that price levels are the result of the laws of supply and demand and not due to speculation trends.

Senator Claire McCaskill (D-Mo.) expressed frustration with Harris, stating “The people of America are about to take-up pitchforks.” McCaskill asked Harris what tools he and the CFTC need to see the influence of speculation on commodity prices. Under oath, oil company officials testified that $30-$50 dollars per barrel can be attributed to speculation.