Subcommittee on Oil and Gas and Other Energy Prices committee  There's the whole notion of commodity regulation, but you're right, it's these two exchanges. Who do you allow, how do you put position limits, how do you track and classify the money? How many investors do you want, and how much speculation do you want? These questions are important, and right now we have basically deregulated the market.

Subcommittee on Oil and Gas and Other Energy Prices committee  Sure. We had $140 dollar oil, and demand in the United States was down 800,000 barrels per day for the first six months of the year. People react. Obviously it creates pain, but you also get more efficient. The notion that we are using 85 million barrels per day efficiently in the world is a joke.

Subcommittee on Oil and Gas and Other Energy Prices committee  Yes.

Subcommittee on Oil and Gas and Other Energy Prices committee  There's still position limit, by the way. The problem, as Mr. Masters has identified very well, is that you can go on the market and have a position limit, but if you can go through the back door, if you will, and take an index fund, you don't have a position limit. We have opened a loophole for companies.

Subcommittee on Oil and Gas and Other Energy Prices committee  It's really a collective action issue. You can regulate the Ontario teachers if you want, but it's not going to actually help the Ontario teachers' pensions, so you're hurting the pensioner here. The problem is really collection action, because in the U.S. we're saying exactly the same thing: we shouldn't regulate these markets because the British are not regulating them.

Subcommittee on Oil and Gas and Other Energy Prices committee  Yes. I think it's only part of the problem. I think—you're right—you have cost inflation and it costs a lot of money to discover oil. But the primary issue is access. You do not have access to the most prolific basins in the world. They are closed. Oil companies are not allowed to explore in—I can give you the list of the countries—Mexico, Russia, Saudi Arabia, Iran, Iraq, Kuwait, UAE, etc.

Subcommittee on Oil and Gas and Other Energy Prices committee  Yes, this is what we do. We constantly look at what's happening in the oil market. This is my profession. And it's very clear that it's a future market driving the spot market. And if you look at oil prices—and we try constantly to understand how they are created, because this is what we try to forecast—if you look at the last 12 months, the only serious correlation you have here as to why oil prices have moved from $70 to $140 and back down, the only serious correlation that works, is the value of the dollar.

Subcommittee on Oil and Gas and Other Energy Prices committee  Oh yes.

Subcommittee on Oil and Gas and Other Energy Prices committee  The term “greenfield” means basically a brand new field. It doesn't have to be onshore; it could be offshore. And clearly the high cost, the $80 cost, is for a deep offshore field, not an onshore field.

Subcommittee on Oil and Gas and Other Energy Prices committee  It's around $70 to $80.

Subcommittee on Oil and Gas and Other Energy Prices committee  Yes, but it has actually been lasting longer, because just the size of these players has overtaken the market. I take you back to what Mr. Masters said earlier. These indexes have a tremendous impact, because you're investing in all commodities, so you see everything else going up at the same time.

Subcommittee on Oil and Gas and Other Energy Prices committee  Quickly, I want to answer Mr. Sprott on this notion that there is a physical price and a paper price. No, there is only one price; there is a paper price. The physical price is basically a derivative of the paper price. The price discovery mechanism is on the exchanges; it is not any more into the physical market.

Subcommittee on Oil and Gas and Other Energy Prices committee  Well, you had more competition in refining. And as I said, in the last 20 years you only had three good years of refining margin, which was the last three years. And this year it is pretty bad. The reason is very simple. Supply and demand do work on refining in the sense that as the refining margin increased, and they increased because the product balance was very tight—the diesel and the gasoline, not the crude—suddenly we added refining capacity.

Subcommittee on Oil and Gas and Other Energy Prices committee  Yes. The amount of oil in the ground changes at different prices. It means that what's important is that if you have $600 oil you'll have a lot more oil. If you have $20 oil you'll have a lot less oil. It costs money to produce oil, and as the prices increase you have access to deeper, smaller, more complicated reservoirs.

Subcommittee on Oil and Gas and Other Energy Prices committee  It's the same thing.