Last night, 60 Minutes ran an excellent piece on the role of Wall Street speculators in driving the price of oil up and then down. The piece, produced by Leslie Cockburn, concluded that over the last several years, speculation dictated oil prices more than the traditional fundamentals of supply and demand. The show chronicled the influence of large financial investors, including Goldman Sachs and J.P. Morgan, on oil prices. And it explained the role of congressional legislation, passed in 2000 and pushed by Enron, to deregulate the commodity futures market and open the door for speculators.
The role of speculation in driving volatility in oil prices mirrors the conclusions of our paper last year on the role of speculation in driving agriculture price volatility and contributing to the global food crisis. Many big commodity index funds bundle oil and agriculture commodities together. So, when the price of oil shot up, so did the price of agriculture commodities.
As the New York Times editorial board pointed out last week, President-elect Barack Obama's nominee for the Commodity Futures Trading Commission is Gary Gensler, a former Goldman Sachs investment banker who actually oversaw the drafting of the key 2000 bill that deregulated the commodity futures market and contributed to increased speculation. As part of his confirmation hearing, Gensler should explain his support of the disastrous 2000 bill, what he'll do to fix it, and outline what steps he will take to limit excessive speculation in food and energy.
