By Don G. Briggs, President – LOGA (Louisiana Oil & Gas Association)

Everybody loves a scapegoat, and apparently, Congress is no different from the rest of us. For most of 2008, blame for rising oil prices has been thrown in every direction, just hoping that something will stick. The biggest push by Congress has been that speculation is responsible for the large majority of the price increases, and public opinion seemed to be on their side. However, will recent announcements change the opinion of Congress? Only time will tell.

As leaders of the United States, our Congress is being held responsible for solving the issues we are facing today. The congressional majority has been saying for some time now that the economics of supply and demand are not causing the rise in oil prices. They feel that industry speculators cause the rise in oil price.

There are estimates that are supported by the Democratic Majority that speculation is responsible for anywhere from 20 to 50 percent of the rise in oil prices. In 2001 Congress changed rules that allowed anyone to buy oil futures, not just those who intended on using them. Since then, speculators have increased their presence in the oil futures market from 37 percent to over 70 percent.

Legislation is being worked through the Houses to end oil market speculation. The majority feels that this will bring prices down below $100/barrel and under $4/gallon of gas. The question is, if this legislation is passed, will that really happen? Is speculation really to blame? A task force assigned by Congress to investigate speculation does not think so.

The Commodity Futures Trading Commission (CFTC) launched a broad investigation into oil price manipulation in May. The task force is made up of members from the Department of Agriculture, Department of Energy, the Department of the Treasury, the Board of Governors of the Federal Reserve, the Federal Trade Commission and the Securities and Exchange Commission. This week the CFTC released some preliminary results of their investigations.

The report states that the rise in oil prices is due to supply and demand forces, and is not caused by speculation. The report went on to say that the rise in price is primarily caused by the imbalance in supply and demand and that this is likely to continue into the future. As supply sources are interrupted and are diminished, and demand growth continues, especially in India and China, the tension between supply and demand will increase, and therefore so will price.

If the CFTC is not convincing enough for Congress, the International Energy Agency has also said that speculators are not to blame for the rise in prices. Both the CFTC, IEA and even oil industry experts understand that speculation has some effect on the price, especially with regard to the rise and fall of prices over short periods of time. However, speculation is not the cause of the long-term change in price. Gold and silver have seen similar rises over the same time period, and there is also no evidence of excess oil supply that would signify a “bubble”.

Where does that leave Congress? We now know speculation is in fact not causing the rise in prices, and that it appears on all accounts that we have a serious supply and demand situation on our hand. Well, Congress appears to be ignoring the findings of the experts, and are moving ahead with their legislation to end speculation. It’s time for Washington to stop playing politics and to start listening to the people who know the situation. In a recent poll, 75% of Americans wanted to open US coasts to offshore drilling, thereby increasing the supply. Seems like the American people have a good idea…