Subcommittee on Oil and Gas and Other Energy Prices committee  I agree with Roger. Along with that is having strong position limits reinstated. This is something that worked well for 70 years in the United States. There are no unperceived consequences. You have strong position limits on excessive speculation. That allows the market to work more in balance with some speculation and some folks in there who are producers and consumers of crude.

Subcommittee on Oil and Gas and Other Energy Prices committee  I think the difference is that you want sufficient speculation but you don't want unlimited speculation. You need sufficient speculation to grease the wheels to allow for the liquidity that Roger was talking about, but you don't need too much speculation because you then destroy the price discovery process.

Subcommittee on Oil and Gas and Other Energy Prices committee  I was just going to mention that while it may seem that some of this is out of your hands, as some of it has to do with the legislative actions of other countries, one weapon that has proven effective, in my opinion, is moral suasion. I think that when politicians make the point poignantly and appropriately that we're having issues of speculation that are amplifying the effects on markets, people hearing this message tend to act.

Subcommittee on Oil and Gas and Other Energy Prices committee  There's no question that the price is, and has been, well above the marginal cost of production for most of the year. When we look at index flows of money into the commodity futures markets, it's very interesting. They have really gone up all year, until peaking around July 1. Subsequent to that time we have seen significant index flows out of commodities, and the price has come down fairly significantly.

Subcommittee on Oil and Gas and Other Energy Prices committee  I don't know if I'd call it a bubble or not. I think you have definitely seen the amplification of price, of a fundamental supply and demand situation, by investors. Now there's debate over what that amplification is. My view of the world is that $170 billion going into anything is going to have pretty significant distortions on the price, especially when the markets are much smaller than the typical capital markets that capital market investors usually invest in.

Subcommittee on Oil and Gas and Other Energy Prices committee  Yes. I was going to say that the CFTC has had a lot of issues concerning this. There has been a lot of criticism of the agency. During my testimony in May, one of the senators, Carl Levin, called the CFTC a sort of “see no evil, hear no evil” kind of agency, in the sense that they tend not to see what's going on sometimes.

Subcommittee on Oil and Gas and Other Energy Prices committee  Yes. Recently a CFTC vice-chairman, Bart Chilton, said that he felt the study may have reflected a foregone conclusion. More important, in the last few weeks the CFTC themselves reclassified one very large trader, Vitol Corporation. I believe it was in The Washington Post. They had classified them as commercial and then reclassified them as a—

Subcommittee on Oil and Gas and Other Energy Prices committee  I think right now you have demand that's certainly equivalent to China's, based on the data that we've seen. One other point that I'd make really quickly, going to Mr. Sprott's point that there's a buyer for every seller, is that it's correct, there absolutely is a buyer and a seller.

Subcommittee on Oil and Gas and Other Energy Prices committee  I believe the Ontario teachers' fund is one of the participants in commodity futures indexation replication strategies. Beyond that, I am not aware of any others. It is a reasonably popular asset class now for many pension funds across the United States. And I imagine there are other participants in Canada other than the Ontario teachers' pension fund.

Subcommittee on Oil and Gas and Other Energy Prices committee  Thank you. I appreciate the opportunity to speak with you today about a recent and never-before-seen phenomenon in the commodities futures markets. Historically, these markets have had two types of participants: one, physical hedgers, who are the actual producers and consumers of tangible, real-world commodities; and two, speculators, who trade commodities futures to try to make a profit.

Subcommittee on Oil and Gas and Other Energy Prices committee  Yes, I can hear you, James. Thank you.