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Congress Pressured on Oil Prices

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Congress Pressured on Oil Prices

Special Interests 
All Want to Shape 
Lawmakers’ Moves
By ELIZABETH WILLIAMSON and STEPHEN POWER
June 26, 2008

WASHINGTON — Congress’s scramble for answers to escalating oil prices is fueling a special-interest struggle on Capitol Hill, with truckers and airlines battling pension funds; endowments fighting farmers; Big Oil pointing fingers at Big Finance.

With more than 10 proposals on the boil and as many hearings on the schedule, industry lobbyists want legislation that favors them, using rhetoric designed to jolt Congress into action. Lawmakers are scrambling for a solution before they head home for a month-long recess in August. But so far, no proposals have surfaced that guarantee relief ahead of November’s election.

Congress is working on a series of proposals to prevent speculators from driving up the price of oil. WSJ’s Elizabeth Williamson discusses the scramble to find a solution that will lower gas prices. (June 26)

Members of Congress “really want to do something, and they’re really looking for what can they control,” said Judy Schub, managing director of the Committee on the Investment of Employee Benefit Assets, whose members include more than 100 private-sector pension funds. “But they can’t control supply and demand.”

The impasse underscores a universal difficulty in Congress. Given an emergency with many possible legislative solutions, or perhaps none, lawmakers find it tough to act quickly, leaving a vacuum filled by demands from special interests.

“Those of us who run for office feel incredible pressure to do something,” said Democratic Sen. Claire McCaskill of Missouri.

Investors in commodities markets, branded as speculators by many in Congress, appear to be at most risk from legislation.

The problem is that nobody can say how much of oil’s surge is being fed by pension funds, investment banks and other institutions that never take physical custody of oil but invest in futures contracts to hedge against inflation and diversify portfolios.

For months, Bush administration officials, regulators and Wall Street banks have said speculation has played a minimal role in oil prices. But a slew of major industries take a different view. They include oil companies eager to deflect congressional ire over high gas prices, and companies from plastic-furniture makers to heating-oil distributors.

Testifying before a House subcommittee this week, Northwest Airlines Chief Executive Officer Douglas Steenland endorsed banning pension funds and other institutional investors from futures exchanges, and he urged lawmakers to close loopholes that allow traders to dodge regulation by trading on foreign exchanges or over the counter.

“Addressing excessive speculation is the most immediate remedy Congress could deliver,” Mr. Steenland said.

A top financial-services lobbyist hit back, saying airlines that didn’t hedge against rising fuel costs “made a business mistake, and now they’re asking Congress to bail them out.”

The nation’s trucking companies want curbs on speculative trading, too. They say they are on track to spend $29 billion more on fuel this year than last.

“Diesel prices have gone up 45% since the beginning of the year, and that’s not explained by normal supply-and-demand factors,” says Timothy Lynch, a senior vice president of the American Trucking Associations.

Truckers say Congress might have to explain to voters why deliveries of goods have ceased during summer recess.

Big Oil has leveraged ire over gas prices into support for more domestic drilling from many Republicans. That hasn’t prevented the nation’s biggest oil lobby from hammering investment banks.

Red Cavaney, President and CEO of the American Petroleum Institute said reining in speculators and pursuing more drilling would “help provide some relief by sending a policy signal.” Pension funds and banks disagree.

Ms. Schub made sure her group, which represents pension funds with $1.5 trillion in assets, testified in a Senate hearing Tuesday on oil speculation. The group’s chairman, William Quinn, told the panel that “to prevent institutional investors, including pension plans, from investing in a certain asset class is a very bad idea.”

Investment banks have been making their case in private. Lobbyists say that is because they feel targeted in the speculator hunt.

Scott Talbott, chief lobbyist for Financial Services Roundtable, stood in a Senate office building hallway with a half-dozen other financial-services lobbyists this week, reflecting on “the perfect storm.”

“We’ve got $4-a-gallon gas, summer-driving season, the airlines, truckers, Big Oil and an election year,” Mr. Talbott said. “Our idea is to prevent overreaction from Congress. Anyone who can help achieve that goal is an ally.”

Write to Elizabeth Williamson at [email protected] and Stephen Power at[email protected]

http://online.wsj.com/article/SB121444257704605659.html

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