oil. so a number of years ago we were talking about, you know, people who held these futures. they were trucking companies. they were airlines, these kind of people who weren't, you know, traders. now, today, according to the chairman of the commodities futures trading commission, these traders now account for 85% of the crude oil futures market. and i read your testimony last night, and none of you touched on this factor, the changes in the oil futures market. so i think the first question i want to get into, we can just go right down the row, do each of you believe that this change and the significant number of traders, commercial traders in

the oil futures market, significant? just yes or no. let's go down the row. doctor? >> maybe it's not allowed? i mean, i actually think it's a legitimate question, one that we're very interested in. but it's hard -- you know. well, you want a very short answer. >> we're not imposing any gag orders. >> okay. well, that's good. because one of the questions is, you know, first of all there's a lot of because someone has a title or how they're cat dwregod as an organization does not necessarily tell you what the motivation is behind a particular trade, is one question. the other thing is there's a lot of activity that goes on off the exchanges that are not included in data. but i would say, you know, the general perception, i would tend to agree with you, that there's a lot more activity. >> great. we're going to see if we can get some facts on the record. then i'm going to ask some questions on getting your opinions. dr. yergin.

particularly for you because you have educated me on the fact there are a lot of changes going on. and because you all didn't touch on this one in your testimony, i just want to see if you all share my view that this has been a significant -- >> well, yes, i think it's been a significant change. i don't think based upon our understanding today that it is the driving force that can accentuate things. i was thinking when there was a crisis in iran in 1979 and '80, there were no futures markets and the price also went up very sharply. so it's part of the mix and a very visible part. i guess, frank, it's your graphic. >> so, senator, part of the reason i think we didn't go into detail in any of your testimony because was at one point i think we anticipated a second panel with commissioners, so we were going to leave the kind of to their area of expertise. i agree with what howard and dan have said. i think there's been a change in the market. i don't want to characterize it as necessarily good or bad.

there are new players. it's part of what we're calling the kind of the new fundamentals, which used to be supply, demand, and inventory. there's a lot more -- it's a lot more complex market. >> i think the reason it wasn't already highlighted in testimony is, you know, reasonably happy with the supply/demand prices and how they've behaved. there's not a big residual left over on the explained by something else. i don't think it makes a difference as to where the price is today. this is a great american business success story, the success of the exchanges and deepening with liquidity, the involvement. for me, more liquidity is a good thing. these are a significant part of a very large global overall market that makes up -- which has all kinds of other bits on top of it. seeing more liquidity come on to regulated exchanges, again,

should actually be seen as a good news. i much prefer to see activity taking place where i can see it. so i don't think it's a problem in terms of increasing prices. one further thing on this, and just go back on -- i do think we need to draw a distinction between activity by institution, investors, and hedge funds. >> let me just see if i can get one additional question in. goldman sachs has produced an analysis suggesting that the speculation premium on crude oil could be $23 barrel or 56 cents a gallon at the pump. the consumer federation produced their analysis concluding ec to the price at the pump or roughly 50 cents. a year ago, as we discussed briefly earlier, the exxonmobil ceo stated that speculation had increased the price of a. now, can i just get a yes or no with respect to this question -- whether you think these analyses -- because all three of

them, all three of them agree that there was a speculative premium for a barrel of oil. i would just like to know whether the you think that all of these analyses are wrong. let's just go right down the row. i've taken an extra minute, but there were three separate analyses done by three different organizes with different philosophical roots. and all of them concluded that there was a speculation premium. and i'd just like to know if you think those analyses are wrong. let's just go right down then, the specific studies first before i commented on them, but i think -- i think a lot of the issue -- you know, sometimes different assessments of the role soft peculation have to do with the standard of proof or burden of proof that's applieap. you know, if you apply and innocent until proven guilty, beyond a reasonable doubt standard, i think my reading of

the literature as a whole, not just these three studies, which i haven't read, is is that ul convicted. if instead you looked the guilt is confirmed unless innocence is demonstrated beyond a reasonable doubt, that some jurisdictions use when considering whether to exonerate and release convicted prisoners, speculation is probably not going to get out of jail anytime soon. so, you know, i mean we think about having this discussion but -- >> i'm going to take that as a no. you think -- >> no. i have a feeling that different people who have this discan us are applying different standards of proof issue as much as the competition of these different results. that's my view. >> dr. yergin. >> oil prices, gasoline prices are both up 20% since the u.n. issued its report about iran's nuclear program. so i would not call it a speculative premium. i'd call it a risk premium or security premium. but there is a premium that reflects this increased tension and anxiety in the market.

>> and not surprisingly, i agree with both howard and dan. i mean, i think that there is a premium in the market over and above finding development costs. i wouldn't attribute it all to speculation. and i would like to see the studies and the definitions are important, senator. >> same for me. those results don't sound very plausible. if there was a large speculative premium, prices would then be higher than a market price, which should mean that we'd be seeing large surpluses building up, people in the fiscal market would be asking for discounts because they want to play the proper fiscal price, not the speculative price. what we actually see is in the international fiscal market today people paying large premiums to get their deliveries accelerated. it's quite the eris no global s building up. instead, we have limited spare capacity. we've had eight straight quarters of draws. we finally have a balanced

market at this price. i think it's encorrect to think in terms of speculative premium. >> let's go to senator murkowski. i just think it's striking, gentlemen, when all four of you say that organizations from goldman sachs to the ceo of mobile are off base. we've got to do some more digging on this, because i will tell you, i don't just operate under the assumption that somebody with a xerox machine can turn out a study and that ought to be what we make public policy on. but when you have this cross section of groups and individuals representing such a wide array of philosophies saying that significant speculation, you know, premium, that's something that has to be addressed by policymakers. i gather that senator murkowski was here but she's had a turn so -- en let's recognize senator udall. >> thank you, mr. chairman. and senator murkowski, as

always, is very gracious. gentlemen, this has been informative, enjoyable. i've learned a lot as i think we all have. this morning i want to just piggyback on what senator widen just pointed out, and that is that we ought to be realistic as policymakers here in washington that if we're going to squeeze iran, that we're going to see a risk premium then built into international oil markets. i think you all agree. and i think it would behoove all of us here when we start to talk about high oil prices and, therefore, high prices at the pump, and we've become outraged, we first ought to say we've all for the most part here in washington said it's in our national security interest to squeeze iran, and as a part of that proesz, we can anticipate gasoline prices are going to rise. we have to be straight with the american public, but that's in part what's happening. and i do think that senator campbell made some good points about the difference between legitimate hedgers and

speculators. be interesting to try and differentiate between the two. but in that context, i wanted to follow up on what she began to allude to, which is i remember global energy markets. and could you all address how the u.s. can support competitive and open global energy markets? how do we work with the international community so we can reduce the pain at the pump? not just for our citizens but as senator cantwell pointed out, japan, europeans, and the chinese. i've been pushing the state department and the ustr to see what they could do to use all options diplomatic and economic to help stabilize prices in that arena. but i'd be curious your thoughts, starting with you, dr. gruenspecht, how we could do that. >> i mean, you know, again, as you know, it's not a policy agency, but i will point out that the state department is establishing for the first time, i believe, a new bureau of

energy, you know, at the assistant secretary level. i believe that that's an initiative. i think the nominee has been nominated and actually had his hearing recently. even before that, i think will's a lot of outreach. i know in the shale gas area, there's been a lot of international outreach, again, not done by us, done by the state department, but sharing technology, and there's a lot of interest, a lot of investment in foreign companies, in our, you know, horizontal drilling and fracking, fracturing, hydraulic fracturing operations, in part because i think they would like to gain some experience. to the extent that plays out in sort of tight oil, which has been discussed at this hearing in part, you know, that's available. the united states, it's been a big important change leading to some of the increases in production in north dakota and the eagle ford and some other

places in california as well. if thatomes more globally available as one would expect it will, you know, first shale gas in the united states and has become global, maybe tight oil will become global, and that becomes an opportunity to really change the supply/demand balance in world oil maof opportunities. >> exporting our technology? >> and exporting our efficiency technologies, again, because the same thing here, to the extent vehicles are more efficient globally, we're the biggest gasoline market, but there are other markets for gasoline and disl around the world. and things we can do to disseminate technologies that either increase supply or reduce demand and frankly both is very, very -- seems very important to me. and i know the state department and others in the government are very interested in that. >> dr. yergin, i know you've got the answer here.

>> hardly. but i think that -- i think what you're also talking about is encouraging other countries to have more open markets to investment and to a timely -- ability to make timely investment. and i think that as you're suggesting is part of your trade agenda would be very thi becau that, again, gets more supplies into the market and more quickly. s tw additional ting what my pieces. when you look at international institutions, i think the use of the ief, the international energy forum, and the arrangements, i actually think that by bringing saudi arabia into the g-20 it really helped in the conflict. there was -- there was a day in july, either end of june or july, when we had a global security forum at csis and mike free throwman was on our

the same day as opec meeting, described as the worst opec meeting ever. there was concern about the u.s. government expressing concern that opec didn't step up to the table and increase supplies given libya was offline, and the saudis did. so the hawks and opec, venezuela and iran look to increase price, not volume, the saudis stepped up and said we want a balanced market, we'll increase supply. i think we're diluting the impact of opec by bringing responsible players to the g will have 20. i do think, and senator murkows murkowski, i know you've talked about this before, the iae, sharing arrangement needs an overhaul in terms of obligations and how we identify stock holding and a bnch of things that we do on a joint engage c mean, unless we make the change, that institution is very much in danger of being irrelevant. >> dr. horsnell you want to bring an eu perspective for us

or british per speckive? se i h grounds to do that. i've mentioned already there are specific circumstance where is there is a foreign policy aspect and we already mentioned perhaps the one that surprises people that the biggest supply interruption today is the situation in south sudan and sudan. so, again, i'm sure that's something cl they're fully ware of, there is a major oil component onto that. i endorse the comments on working with the iaef, working with the -- howard's teams working with jodie, improving the transparency of the global markets is always an excreamily good thing. i think one thing i must also say, it's the iea haseen adrift years for energy policy to become a little unilateral, a little bit bilateral when clearly multilateral response it will work better to these kind of aspects. it's been worrying perhaps a

little bit over the past couple of months that the potential effectiveness of some of the levers that are left to control the markets might have been diluted by this move towards unilateral/bilateral energy policy when perhaps we should be building up undermining it at this point. >> if i could add one other thing to follow up what howard says, the u.s. state department now has an energy bureau, and the reason i bureau is because the u.s. senate encouraged it to have an energy bureau. and that is a er a clear compon foreign policy. >> i'm sure that was driven by senator binghaman. i would finally just propose to my colleagues that we could go back to thebing hamman product we produced in the last congrs it forward, we would see a lot of positive results on this very topic we're discussing today. thank you, mr. chairman. >> t senator.

senator murkowski. >> thank you, mr. chairman. and i thank my colleague for the plug there on the energy bill. let me ask, since good discussion here about the role of speculation, i'm going to ask you to speculate just a little bit here. what do you think the response in the market would be if there to bring on a million, 2 this million barrels a day even if we recognize, okay, it's going to be five years before we actually see that out in the market but a commitment, say, whether it is -- whether it's an opening of anwar, whether it's substantial commitment to additional production? even though it's not here today, how do you think that impacts the market? dr. gruenspecht. >> i think i'll have to get on a plane that goes all the way to australia. but, no, i think -- i think it

really depends on the -- on the -- for the amount of oil, you know, the nature of the commitments, because a lot of commitments get made -- >> let's just assume for discussion sake that it's a real commitment of a million barrels a day. >> okay. i think only, you know, over ten year, i think only modest price impacts would be expected, frankly, if supply from drilling, you know, in one area like the united states is offset by reductions in supply from other parts of world, which is another something that could happen, or if demand is relatively, you know, more responsive to changes in supply. and demand is more price run, you know, the onger time million barrels tomorrow is a different thing than a million barrels ten years from now, both in terms of offsetting responses and in terms of the demand response. so maybe -- >> a modest impact on prices today. >> modest impact on prices. but, again, a lot of

environmental, economic, and geopolitical benefits. those are the things i think you >> what about the rest of you? dr. yergin? >> i think we can -- you know, looking over the status with iran right now, i think you can sort of see the change of expectations in the market already occurring among other participants in the market as they see the u.s. instead of being in this inevitable decline is on an upsurge and its demand going down. so i think it's there. to use a -- to vary on what paul horsnell said, i think it would reanchor long expectations. obviously, it's not -- it has to be credible, and people have to see it coming. even now things that can increase the sense of confidence, what we need -- and this goes back to senator widen's question about why is this premium there. if there's a greater sense of

confidence and it can come irecs an ingredient that would be even helpful in the short term. >> that would be helpful in the short term. >> dan's dan's. i think that the value add here is especially as we move into the young conventionals since we're doing it first, if the u.s. can demonstrate they can get it right in terms of both shale gas it has huge implications throughout the globe. if you're looking at a global demand, you can increase volumes by huge numbers. i guess, though, the next piece is this kind of great dilemma idea. it's just like what do we want to be? when we increase -- i know the environmental community gets very upset when you talk about 200 years of natural gas, because if you're looking to move to a lower carbon economy, that delays thatere was some se terms of the narrative being consistent, that if you were on the path to a cleaner fuel

economy, because you were running out, prices getting higher, volatility increasing that gave you additionpes. in now you're sitting on vast and abundant rrc and you developed it, you extend, which i think probably needs to be extended, but you extend the life of conventional fuels. they're cl on longer, and in my mind us br space to figure out the next step, because we're not there yet. f i octor, i'm going to ask you, may. this is my last, but i wanted to ask that one, because as we talk about, to the potential for anwar, the pushback we get, it's not going to have any impact because wo production online for a period of eight, ten years under a best case scenario. therefore, just don't even start. i don't accept that logic. and i do think that it does help to bring exactly the confidence

that dr. yergin hasor, e last q you is, if you can share with us a little bit of the experience that great britain had a couple years ago, faced with high gas prices. they made a decision to increase their taxes. quite dramatically. we just came from a vote that would attempt to basically do the same effectively increase the taxes on the oil and gas industry.u' now reversed that position. because it's my understanding that in the two years since the increase in t a tripling of the yes, so in production in the uk, you're reversing that. can you just speak to the experience there, and what led to the decision to -- to impose

the taxes and now to reverse those? >> yes. to answer your y th the tax increase was greeted by the industry with a certain amount of shock. not only just because of, it bass a tax increase but also because it made the whole fiscal regime somewhat unstable. it was a surprise. very long-term decisions on how to exploit the declining space and finding the fiscal regime bounced around. t occasional polls, the people asked, what's the most dangerous or the best place to invest? what's the worst place to invest? i think the government said the uk was pretty close to the top as being a bad place to invest. the political stability was be undermined by some of that fiscal instability. >> in other words in a country

like the united kingdom, you were nations like angola in saying, you are a bad investment opportunity? >> it's -- yes. again, the invest was very much one of that enhanced recovery in making the best of the last stage, but it did appear that the capital could be more effectively employed elsewhere, and rates sort of stem prospect sure in the sea continues, the reversal running through. again, i'm not an expert on uk tax but in terms of the broad sweep what h think the instability of the tax regime was something that did impact on the flow of that investment. >> thank you. and i appreciate the fact that you have come all the way to be part of theti

morning. very credible panel and you have certainly enhanced that credibility. thank you, mr. chairman. >> thank you. gentlemen, let me leave you with one other kind of thought, because i know not just this committee but others in this country are going to ask your opinion about some of the policies that we're going to have to address in the days ahead, and i sort of start this judgment and come to the hearing good public policy, you've got to get your at least some common ground on the facts. you may not get everybody to agree on every aspect of the factual situation, but you've getto find some ways to key facts. and in particular, i serve on the intelligence committee, for example. and i certainly share the

judgment that iran is part of this whole debate. there's no question about this. but i will tell you, i'm very reluctant to accept the idea that all of the risk is the situation in iran. and that's to a great extent where you all have guided much of this discussion. you look, for example, at the fact that goldman sachs practically invented the commodity index fund. i mean, these are people who know a lot about the impact of non-commercial investment. these are people who have played an enormous role in this sector, and they produce an analysis suggesting that the speculative premium on crude oil could be $23 a barrel or 56 cents a gallon at the pump. and you have the ceo of the

largest, you know, oil company stating that speculation has increased the price of a barrel of oil by $20. so these are significant judgments, and i hope that as we go forward we can continue to have this discussion. i understaood that a number of you said that you hadn't had a chance to look thoroughly at these studies, and i respect that, but i hope that you will. i would very much personally like to have your judgments with respect to whether you think those analyses are wrong, and i just want to you know as somebody who's been on this committee for quite some time, i'm prepared to accept the proposition, based on my work here and on the intelligence committee, that the situation in iran is certainly a part of this

calculus, but i don't buy the theory that this is the entire concern that we're dealing with, and i hope that you will take a look at those studies,act that three of them, and certainly by two sources with considerable expertise and industry activities, one, the consumer federation, advocates for goodb of getting the facts and doing their homework and the fact that all three of them reached this judgment, to me har, has got toa significant part of this debate as we try at least to find some common ground to make preparedt effort to make policy to acknowledge there's no question that the situation in iran is part of the -- doctor, your colleague got his hand up first

but we're happy to hear from both of you implts just want to say that eia is actually very interested in this topic and that's very important to lay out. you know, in 2009, we launched an energy and energy markets initiative exactly what the aim of assessing the influences of financial activities in markets such as speculation, you know, our traditional fundamentals work. we've proud a website, energy and financial markets what drives crude oil prices. you know, we certainly discussed the role of futures trading. we're very interested in increasing the evidence, the body of evidence, so to speak. we update that website on a monthly basis. we've brought together many of the leading researchers in the area, a former colleague of mine, now out in california. we brought him in, the ftc over, worked with them, held a couple