It was an argument that went back and forth when oil prices reached heights of above $140 a barrel. Was it a result of supply and demand or speculation on the part of investors?
Tom Udall, while running for U.S. Senate, said, "Speculators are playing a significant role in this... Some estimates are, in testimony, sworn testimony before Congress, that ... a third of the cost of a barrel of oil could be from speculation."
Udall, as a member of the U.S. House, also voted for a bill which sought to "to bring greater transparency and accountability to commodity markets." The bill passed 283-133. Both then Rep. Heather Wilson and Steve Pearce, Republicans, voted against the bill.
Now, it looks like Udall’s position looks to be the correct one according to Daniel Fine of the New Mexico Institute of Mining and Technology’s Center for Energy Policy in a forum last week.
"Like real estate, the energy bubble was based on excessive, open credit that allowed big investment firms to instantly arrange contracts without putting anything up," Fine said at the forum according to the New Mexico Business Weekly. "No deposit or letter of credit was needed."
After the collapse of Lehman Brothers — which had significant oil holdings — the price plummeted to below $35 a barrel, a hundred dollars less per barrel than at its peak.
More from New Mexico Business Weekly:
Once speculative borrowing ended, oil prices plummeted to below $35 per barrel, which Fine said can’t be explained by supply and demand."At this point, total world demand for crude has fallen just two percent," Fine said. "U.S. demand since the peak is down less than five percent. I say it’s not supply or demand, it’s fall out of speculation and the relative absence of credit from the financial services industry."
Now the question becomes whether or not Congress does anything — if there is anything possible — to curb the speculative investing on energy. A similar bill that Udall voted for in the House failed to pass cloture in the Senate, 50-43.