The record-shattering run-up in energy and food prices has put investors who buy and sell such things on the hot seat -- so hot that some in Congress on Tuesday threatened action.
"The American people are about to take out pitchforks" because of the cost of groceries and gasoline, Sen. Claire McCaskill (D-Mo.) said during a Senate hearing on whether commodities are being pushed higher by investors' high-stakes bets that prices will keep going up. Given the uproar from consumers, McCaskill warned an official from the U.S. Commodity Futures Trading Commission, "if you don't do something, Congress will."
Such strong words came on another record day for oil prices -- which flirted with $130 a barrel -- and as drivers in many states prepared to pay more than $4 a gallon for gasoline on Memorial Day trips.
Sen. Joe Lieberman (I-Conn.), who chaired Tuesday's hearing before the Homeland Security and Governmental Affairs Committee, said that commodities trading by pension funds and other institutional investors has risen sharply. He noted that investment in index funds tied to commodities has grown twentyfold to $260 billion in the last five years.
"This unbridled growth raises justifiable concerns that speculative demand -- divorced from market realities -- is driving food and energy price inflation and causing a lot of human suffering," Lieberman said.
Much of the focus has been on the stunning rise in the cost of crude oil, which has rocketed up by more than $40 a barrel since early February and closed Tuesday at $129.07, up $2.02, in New York futures trading. But similarly spectacular jumps have hit the prices of gasoline, diesel, heating oil, corn, wheat and gold.
The link between soaring prices and the vast sums of money flowing through commodity markets is controversial and hard to quantify.
Economists, traders and regulators routinely dismiss the notion that excessive trading is the culprit instead of traditional market forces such as supply and demand. And they warn that increased regulation could interfere with trading programs used by airlines and others to blunt the negative effects of rising commodity prices.
Jeffrey Harris, chief economist at the Commodity Futures Trading Commission, told lawmakers Tuesday that the high prices reflected increased demand from emerging markets and decreased supply because of bad weather or geopolitical events.
Harris and others also pointed to broader economic factors such as the sinking value of the dollar, which has made commodities traded in the United States a relative bargain for foreign investors. Commodities also have recently offered more certain returns than the stock market.
"Together, these fundamental economic factors have formed a perfect storm that is causing significant upward pressure on futures prices across the board," Harris said.
Such explanations are less than soothing in the face of the unprecedented price hikes, which have alarmed consumers and politicians and yielded unusual alliances.
A nationwide group calling itself the Energy Market Oversight Coalition hopes to persuade Congress to rein in commodity speculation. Its members include consumer advocate Public Citizen, municipal utilities, convenience store and truck stop operators, a steel makers trade group and retailers that sell heating oil, wheat, barley and gasoline.
"Frankly, our industry and consumers are under siege right now," said Shane Sweet, chief executive of the New England Fuel Institute, a trade group for heating oil distributors that helped organize the coalition.
The coalition runs a website, www.closetheenronloophole.com, that urges Congress to eliminate a provision pushed by energy trader Enron Corp. that in 2000 cleared the way for energy trading outside the purview of regulations governing activity on the New York Mercantile Exchange. Much of the world's energy trading still takes place through the Nymex, but a growing share flows through thinly regulated electronic systems that critics call "dark markets."
The farm bill that Congress is sending to President Bush includes a measure that would close that so-called Enron loophole, increasing federal oversight of energy trades. The effort took five years to get through Congress and is a clear sign that re-regulating some energy markets now has much broader appeal.
Rep. Joe L. Barton of Texas, the top Republican on the House Energy and Commerce Committee and influential among his fellow GOP lawmakers on energy issues, said in an interview that he supported efforts to rein in energy trading.
"I don't think there's any question that speculators in the oil markets have taken prices higher than they would be otherwise," Barton said. "I think there ought to be new rules."
Barton, Lieberman and others have said they would draft legislation that would restrict commodity investments by large investors and close a loophole that allows speculators to avoid investment limits. A separate provision embedded in the Senate Democrats' energy bill would ensure that foreign exchanges using trading terminals within the United States adopt the same limits and reporting requirements as energy commodities traded on U.S. exchanges.
"You've got futures exchanges that are rife with the ability to manipulate and excessively speculate," said Michael Greenberger, a University of Maryland law professor who spent two years in charge of the Commodity Futures Trading Commission's trading and markets division. "Congress firmly believes that they've got to bring this speculation under control. And it is my thesis that if these markets were policed, the prices would drop very rapidly."
Douglass reported from San Diego, Gaouette and Simon from Washington.