Statement of

James Newsome

on behalf of

Terrence A. Duffy

Executive Chairman of CME Group Inc.

Before the

United States Senate

Subcommittee on Energy

Of The

Energy and Natural Resources Committee

September 16, 2008

I am Terrence Duffy, Executive Chairman of Chicago Mercantile Exchange
Group Inc. ("CME Group" or "CME"). Thank you Chairman Dorgan and Ranking
Member Murkowski for this opportunity to present our views.

CME Group was formed by the 2007 merger of Chicago Mercantile Exchange
Holdings Inc. and CBOT Holdings Inc. CME Group is now the parent of CME
Inc., The Board of Trade of the City of Chicago Inc., NYMEX and COMEX
(the "CME Group Exchanges"). The CME Group Exchanges are neutral market
places. They serve the global risk management needs of our customers and
producers and processors who rely on price discovery provided by our
competitive markets to make important economic decisions. We do not
profit from higher food or energy prices. Our Congressionally mandated
role is to operate fair markets that foster price discovery and the
hedging of economic risks in a transparent, efficient, self-regulated
environment, overseen by the CFTC.

The CME Group Exchanges offer a comprehensive selection of benchmark
products in all major asset classes, including futures and options based
on interest rates, equity indexes, foreign exchange, agricultural
commodities, energy, and alternative investment products such as weather
and real estate. We also offer order routing, execution and clearing
services to other exchanges as well as clearing services for certain
contracts traded off-exchange. CME Group is traded on NASDAQ under the
symbol "CME."

Speculators make our markets work for the benefit of hedgers,
commercials and for all who look to efficient markets for the best
source of price discovery. Our markets operate in a global economy;
impediments to legitimate speculative activity on regulated U.S. markets
will drive trading off exchange or overseas.

We unequivocally support proposals to materially improve the enforcement
capabilities and machinery of the CFTC, especially if care is taken to
avoid disadvantaging regulated U.S. markets for the benefit of dark
pools. We support expanding the mandatory reporting of energy trading
and position information to the Commission in accordance with its recent
recommendation. We share the view of regulators and legislators on the
need for greater transparency most famously expressed by Justice Louis
Brandeis:

> "Publicity is justly commended as a remedy for social and industrial
> diseases. Sunlight is said to be the best of disinfectants; electric
> light the most efficient policeman."\
> \--Justice Louis Brandeis, Other People's Money, and How the Bankers
> Use It, 1933

We believe that disclosure of trading and position information to a
regulator with sufficient resources to analyze and act on unusual or
suspicious activities will deter most potential manipulators and assure
punishment of those foolish enough to attempt a manipulation when all of
their actions are visible to the regulator. This is the philosophy upon
which our internal market regulation has been based and why it has been
so successful.

The recent highly promoted declarations that commodity prices are being
driven by speculators and index funds, rather than the expected forces
of supply and demand lack any basis in fact or theory. The proponents of
the plans to eliminate speculators begin with their inability to
forecast prices based on their understanding of supply and demand and
jump to the conclusion that their inability to predict price movements
demonstrates that the market is not operating correctly.

Most every competent economist who has looked at real data, rather than
using uninformed, wild guesses, and who has applied legitimate economic
analysis concludes that neither speculators nor index funds are
distorting commodity prices. We worry that legitimate economists will be
ignored and that important legislation may be shaped by spurious
economics that is so profoundly flawed in its methodology and logic that
it could be used to prove that lung cancer causes cigarette smoking.
Expert economists who reviewed the work of Masters, McCullough and
Eckaus found, among other flaws, that:

-   Those authors' unfamiliarity with industry fundamentals resulted in
    misinterpretation of petroleum statistics;

-   The authors confuse the consequence of demand for physical product
    and demand for derivatives;

-   The failure of the McCullough model to forecast oil prices is due to
    problems in the model, not problems in the market;

-   The Masters' model of futures markets is overly simplistic, and does
    not correspond to any of the hundreds of academic research articles
    on futures published over the last 50 years. The characterization
    and measurement of "excessive speculation" are arbitrary and
    meaningless;

-   Claims that speculators are the cause of increased volatility
    misstate volatility trends;

-   Master's claim that tough talk from Congress is behind the recent
    sharp fall in oil prices rests on incorrect facts and borders on the
    absurd; and

-   McCullough consistently conflates speculation and market
    manipulation to justify his conclusions.

We are strong proponents of securing all of the relevant information
from all sources and fairly testing the hypothesis and reconfirming
previous academic studies. The evidence to date respecting the impact of
speculation and index trading in energy markets parallels the results we
have found in our markets. We support the CFTC's continuing efforts to
improve the quality of data from OTC sources and to assure that a
thorough analysis informs any subsequent legislative or administrative
efforts to deal with uneconomic price inflation.

[SPECULATION IS ESSENTIAL TO EFFICIENT, LIQUID MARKETS]{.underline}

Fuel and food prices recently bounced to levels that are shocking and
painful to consumers and the economy. We share the concerns of this
Committee regarding the impact these prices are having on the daily
lives of U.S. consumers. Unfortunately, the pressure to reverse rising
prices has led some to look for a simple causal agent that can be
neutralized with the stroke of a pen. The favored culprit is the
traditional villain\--speculators. But speculators sell when they think
prices are too high and buy when they think prices are too low. They are
not a unified voting block and are on both sides of every market.
Speculative selling and buying send signals to producers and processors
that help keep our economy on an even keel. High futures prices for corn
induced farmers to bring new acreage to market. High forward energy
prices encourage exploration and new technology to exploit existing
untapped reserves.

Futures markets perform two essential functions---they create a venue
for price discovery and they permit low cost hedging of risk. Futures
markets depend on short and long term speculators to make markets and
provide liquidity for hedgers. Futures markets could not operate
effectively without speculators and speculators will not use futures
markets if artificial barriers or tolls impede their access. Blaming
speculators for high prices diverts attention from the real causes of
rising prices and does not contribute to a solution. The publicly
available data has been relatively consistent over time in demonstrating
that speculators in crude oil futures contracts have been relatively
balanced as between buy and sell positions in the market. These data
have been ignored by commentators who have wrongly suggested that
speculators are uniformly on the buy side and are thus pushing prices up
on that basis. The weight of the evidence and informed opinion also
confirms that the high prices are a consequence of normal supply and
demand factors. The Wall Street Journal surveyed a significant cross
section of economists who agreed that: "The global surge in food and
energy prices is being driven primarily by fundamental market
conditions, rather than an investment bubble . . . ."[^1]

The traditional production/consumption cycle that has governed prices in
commodity markets is stressed by the confluence of a number of factors.
David Hightower, author of the Hightower Report, summed up the
supply/demand situation in corn last year as follows: " We have
experienced three consecutive years of record corn production... and
three consecutive years of declining ending reserves. Supply has put its
best team on the field and demand keeps winning."

[MASTERS' ANALYSIS IS WRONG]{.underline}

The academic work and the contemporaneous explanations of price
movements in commodities markets have been largely ignored by a few
vocal critics, who have gained an undue share of attention by making
sensational claims. In May of this year Michael W. Masters, who operates
an off-shore equity investment fund in the Virgin Islands and who by his
own admission has never had any actual experience as a futures trader,
began a cascade of charges that commodity index funds were responsible
for unnatural price escalations in commodity markets.

In particular, his allegations focused on crude oil futures and the
underlying crude oil market. We have previously provided detailed
explanations as to how the crude oil futures market and physical market
interact, how prices are determined, and the common commercial practices
and activities that comprise these markets. Among other things, we have
emphasized that crude oil is truly a global commodity and that prices in
crude oil futures markets are primarily driven by the market
fundamentals of the far larger physical market for the crude commodity.
We explained that Mr. Masters was dead wrong. NYMEX had repeatedly
examined and tested for evidence that would support Masters' fundamental
thesis about market performance and had consistently found that his
charges had no basis in fact. NYMEX shared these results in its
submissions to Congress.

On September 10th, Mr. Masters updated his so-called "analysis,"
including his allegations about crude oil market participation, price
determination and performance. On September 11th, the Commodity Futures
Trading Commission (CFTC) released a detailed report that included
definitive data and analysis regarding index-long market participation
in a group of commodities, including crude oil. Unlike Mr. Masters who
guessed at or simply assumed the facts, the CFTC report by contrast
provided definitive and unambiguous information as to whether the index
funds were increasing or decreasing their positions in a manner that
could support Mr. Masters' claims. In addition, the CFTC report provided
futures price information that enabled readers to perform the equivalent
analysis that Mr. Masters purported to perform in reaching his
conclusions.

The information the CFTC provided also was sufficient to enable readers
to evaluate the performance of the methodology Mr. Masters purported to
perform in reaching his assertions about index-long participation in
commodities markets. It should be noted that a core assumption made by
Mr. Masters is that all index trading wherever it occurs will inevitably
be hedged only on the regulated futures markets. The CFTC report, by
comparison, is careful to note that its analysis is set forth in terms
of "futures-equivalents," thus referring to activity both on the
regulated and transparent futures exchanges as well as in less
transparent OTC markets. The unambiguous result of the CFTC analysis,
which is based on the best data available today, and its direct
implication is that Mr. Masters was wrong about everything; about
participation by index-longs, about the price impacts from index-longs,
and about how to even count participation by index-longs.

> • Mr. Masters asserts in Chart 1 that "Index Speculators' Stockpile"
> of WTI crude oil futures was approximately 520,000 contracts on
> January 1, 675,000 futures contracts on April 1, and 680,000 futures
> contracts on July 1 (all this year). By contrast, the CFTC's
> definitive numbers were: 408,000 futures-equivalents on December 31,
> 2007; 398,000 on March 31; and 363,000 on June 30. Mr. Masters' claim
> that futures contracts are "stockpiled" is meaningless. He overstates
> by 27.4% in January and 87.3% by the end of June the number of
> contracts held by index funds. Mr. Masters is not only disturbingly
> off the mark, he shows an unmistakable pattern of significant growth
> through the first half of the year (over 30% growth---well over 30
> when looking at the early June peak) when the actual trend is
> significantly downward---11% down. In other words, Mr. Masters is
> completely lost.
>
> • Mr. Masters emphatically asserts---his "update" is devoted to
> this---that crude oil futures prices follow, virtually in-step, the
> path followed by his asserted (and completely wrong) levels of
> index-long participation. He shows crude oil price rising by nearly
> 50% over the same time period and attributes the rise in its entirety
> to the rise in index-long participation. This is the essence of Mr.
> Masters' price-determination theory and he stresses it in his update:
> when index-long participation grows, the price rises, and, when
> index-long participation drops, the price decreases. Mr. Masters uses
> this theory, one which has been repeatedly disputed by responsible
> energy market economists as well as by NYMEX in its previous
> submissions, to explain the rise and fall of crude oil prices during
> 2008. Mr. Masters expressly attributes the rise in crude oil prices
> from January to May to increases in long-index positions (which, in
> fact, did not happen) (2nd bullet point on p.1 "Update..."). He also
> expressly attributes the fall in prices from July 15th to September
> 2nd to reductions in index-long positions (another of his
> assertions---given his track record, we had better wait for the
> legitimate information) (p. 4 "Update..."). The CFTC report allows the
> reader to apply Mr. Masters' price determination theory to the real
> long-index participation data. Its report shows that, as long-index
> participation fell, prices rose. We of course do not intend to claim
> that the causality runs in this directions---lower long-index
> participation, higher prices. We just wish to identify the clear,
> unmistakable and unambiguous factual refutation of Mr. Masters'
> thesis.
>
> • Mr. Masters asserted in his May 20th Congressional testimony that
> index-long positions in commodities' markets were equal to \$260
> billion in March 2008. The CFTC calculated actual notional value of
> index long positions in commodities' markets to be \$168 billion in
> futures-equivalents, an overstatement by Mr. Masters of a mere 54.7%.
>
> • Even where there appears to be similarity between Mr. Masters'
> assertions and the CFTC's fact finding, Mr. Masters' "methodology"
> nonetheless results in making sweeping assertions that are the
> complete opposite of the CFTC's findings. Mr. Masters, for instance
> asserts that index-long positions increased in value by \$60 billion
> during the first five months of 2008 ("Update..." p. 1 and 3). The
> Commission reports that long-index investments increased by \$54
> billion between December 31, 2007 and June 30, 2008; not identical but
> arguably close. But Masters further claims that long-index positions
> in crude oil increased from 520,000 futures equivalent to over 700,000
> during that time period (an increase of 34.6%). As was noted above the
> CFTC clearly states that actual index-long positions in crude oil were
> reduced from 408,000 to 363,000 (a reduction of 11%). Mr. Masters
> seems to miss the most basic fact ‑ that the value of long positions
> increase with rising prices. In other words, while the total notional
> value of futures equivalent positions held by index traders increased
> during the first six months (from \$39 to  \$51 billion), the CFTC
> report demonstrates that this increase in overall value is
> **[entirely]{.underline}** due to increases in the price of crude oil
> rather than to increases in the sizes of positions. Indeed, contrary
> to claims made by Masters and others, the number of futures-equivalent
> crude oil positions held by index traders actually declined rather
> than increased during this period, indeed a decline of approximately
> 11%.    
>
> • The CFTC's data on the individual commodities also strongly suggests
> the inadequacy of the methodology that Mr. Masters asserts to have
> employed. (We emphasize that we have made no effort to check the work
> performed by Masters.) Mr. Masters asserted in his May 20 testimony
> that 95% of the long-index positions in commodities are tied to either
> the Standard & Poor Goldman Sachs Commodity Index or the Dow Jones AIG
> index. When looking at the changing relative value relationships
> between oil, wheat, corn and cotton summarized on p. 3 of the CFTC
> report and the changing prices over the three dates, this assertion
> becomes very dubious. Yet, giving Masters the benefit of the doubt
> that he properly executed his stated methodology, his methodology
> strongly appears to be wrong. Therefore, if he performed the
> methodology right, it is the wrong methodology.
>
> Mr. Masters has successfully captured a number of headlines by
> trumpeting the supposedly massive inflow of funds by index traders
> into the regulated futures markets. Yet, as noted above, index trader
> positions were actually declining during this period. Moreover, the
> CFTC report is also helpful in providing some realistic context for
> the overall level of participation by index traders. Specifically,
> their report compares the notional value of the futures-equivalents
> held by index traders to notional values for positions in the
> regulated futures and options contracts traded on markets regulated by
> the CFTC.   Simply put, the notional index values are relatively
> modest by comparison. For example, even if one was to assume that
> somehow 100% of index positions ended up being hedged on futures
> markets, for NYMEX Crude Oil, this would still constitute only 13% of
> the total notional value for NYMEX Crude Oil futures and options
> positions. In this regard, the CFTC notes at the outset of its report
> that such a result is unlikely due to internal netting of positions by
> swap dealers.

Remarkably, given how fundamentally wrong Masters is about
**[all]{.underline}** of the assertions that can be tested against the
CFTC's fact finding---and that is the overwhelming majority of Masters'
assertions---he never offers any room for qualification in any of his
"work." Contrast that with the work of the community of responsible
scholars of energy markets who are actual economists and who have
analyzed recent price behavior in crude oil markets---including Phil
Verlager, Dan Yergin, Robert Weiner and Craig Pirrong to name several
but by no means all---and each typically identifies in their own
analysis where they need to perform additional work to fortify their
conclusions. In fact, it is only fair to contrast it with previous
testimony and submission provided by the Exchange where, among other
things, we identified our own efforts to consider and evaluate theories
of price influence with which we disagreed.

Mr. Masters is dismissive of oil market fundamentals. He has not made
any serious effort to uncover the fundamentals. In general, he simply
asserts that supply and demand have been in balance and that there has
been no change in world inventories over the first six months of 2008.
Frankly, we are not even sure what he means by this, but whatever he
means, he is at odds with both the US Department of Energy's Energy
Information Administration and the International Energy Agency.

In both of their recent market reports, each agency speaks to
uncharacteristic changes in OECD inventories during the second quarter
this year. In its September report, EIA speaks to an over 1 million
barrel per day drop from the "average build . . . during this time of
year" for OECD countries during the second quarter. Inventory
information is notoriously complex to ascertain in the world oil market.
US inventory information is released on a weekly basis and is, probably,
the most reliable in the world. The IEA reports OECD countries'
information on a monthly basis. The IEA then revises these monthly data,
which are reported about six weeks after the fact, in two successive
monthly reports. The numbers are commonly revised and frequently the
first revision is one direction while the second revision can be in the
reverse direction. As for non-OECD cumulative inventory information, it
is essentially uncertain. EIA indirectly reports on it but does so as a
residual calculation based on estimates for production and consumption
(and what it knows about OECD inventories), and claims no certainty over
it.

This is why Mr. Masters' dismissive reference to world inventories is
problematic. Nobody would seriously suggest that they know for a
certainty current world inventory levels. In addition, though, he is
factually wrong about what is known. The EIA's current report indicates
that there were indeed changes in world inventories during the first
half of the year---600,000 barrels per day decrease during the first
quarter and 280,000 barrels per day increase during the second quarter.
In addition, the EIA's data regarding the first half of the year
inventories were revised in its most recent report as they were in last
month's report, but each report still indicates that world inventories
have in fact changed during the first half of the year. (The August EIA
report indicated that world inventories were drawn down 300,000 barrels
per day during the first quarter and raised 330,000 barrels per day
during the second quarter.) The fact that EIA and IEA revise their data
each month is manifestation of the complexity in even ascertaining the
correct level of inventories, much the less attempting to understand the
relationship that may exist between changes in inventory levels and
changes in price. (It also highlights some of the uncertainty regarding
core market fundamentals that can have an impact on and be factored into
price levels.) Mr. Masters does not seem to even understand these
subtleties let alone address them, which raises additional questions
respecting his qualifications.

NYMEX has provided Congress detailed taxonomic descriptions of how the
futures market interacts with the physical market for oil with special
emphasis on the role of arbitrage and its corollary impact, price
convergence. In those submissions, we also explained in detail how
index-long position taking would impact the oil futures and underlying
physical crude oil markets. We also provided the results of market
analyses we performed to examine the impact of financial non-oil
participants in the futures market as well as to search for evidence of
price-related impacts from index-long participation in futures or OTC
markets. The consistent result was that there was no evidence to support
impacts on price or price volatility by financial non-oil participants
or by long-index participation in the markets. These evaluations began
in 2004 and included looking at 2007 through the middle of 2008. In the
tradition of balanced economic analyses, we can only assert that we
found no evidence to support these impacts.

Twice, in recent congressional testimony the CFTC has reaffirmed the
validity of its own 2005 analysis.[^2] The CFTC's analysis parallels the
conclusions of many other economists who have also studied the issue of
causation in the context of speculators and commodity futures
prices.[^3]

Neither the CFTC's study nor reference to the supply/demand factors
driving the market has calmed the critics who demand an easy solution to
high prices, which they claim can be mandated without cost or
consequence. This vocal group, which does not include any competent
agriculture or energy economists, insists that driving index funds
and/or speculators from the markets will bring prices back to the
correct level.

The proponents of this plan do not understand the role of speculation.
They do not understand that there are speculators on both the buy and
sell sides of the market. Moreover, they fail to grasp that imposing
artificial costs and constraints on speculation in markets regulated by
the CFTC is likely to drive prices to artificial levels, which can
distort future production decisions and cause costly misallocation of
resources of production. Such constraints also may well result in the
shift of activity to less regulated and transparent markets abroad,
which could shift this activity off the CFTC's radar screen.

The proposal to exclude pension funds and index funds from participating
in commodity futures markets is not constructive. These funds use
commodity exposure to manage risk in their portfolios. Barring them from
regulated U.S. futures markets will only push them offshore or into
over-the-counter trading. Surely Congress does not desire to impose a
remedy that materially and negatively impacts our domestic energy
futures markets and produces no compensating public policy benefit.

Regulated futures markets and the CFTC have the means and the will to
limit speculation that might distort prices or distort the movement of
commodities in interstate commerce. Acting Chairman Lukken's recent
testimony before the Subcommittee on Oversight and Investigations of the
Committee on Energy and Commerce United States House of Representatives
(December 12, 2007)[^4] offers a clear description of these powers and
how they are used.

> CEA Section 5(d)(5) requires that an exchange, "\[t\]o reduce the
> potential threat of market manipulation or congestion, especially
> during trading in the delivery month . . . shall adopt position
> limitations or position accountability for speculators, where
> necessary and appropriate."
>
> All agricultural and natural resource futures and options contracts
> are subject to either Commission or exchange spot month speculative
> position limits -- and many financial futures and options are as well.
> With respect to such exchange spot month speculative position limits,
> the Commission's guidance specifies that DCMs should adopt a spot
> month limit of no more than one-fourth of the estimated spot month
> deliverable supply, calculated separately for each contract month. For
> cash settled contracts, the spot month limit should be no greater than
> necessary to minimize the potential for manipulation or distortion of
> the contract's or underlying commodity's price.
>
> With respect to trading outside the spot month, the Commission
> typically does not require speculative position limits. Under the
> Commission's guidance, an exchange may replace position limits with
> position accountability for contracts on financial instruments,
> intangible commodities, or certain tangible commodities. If a market
> has accountability rules, a trader -- whether speculating or hedging
> -- is not subject to a specific limit. Once a trader reaches a preset
> accountability level, however, the trader must provide information
> about his position upon request by the exchange. In addition, position
> accountability rules provide an exchange with authority to restrict a
> trader from increasing his or her position.
>
> Finally, in order to achieve the purposes of the speculative position
> limits, the Commission and the DCMs treat multiple positions held on a
> DCM's market that are subject to common ownership or control as if
> they were held by a single trader. Accounts are considered to be under
> common ownership if there is a 10 percent or greater financial
> interest. The rules are applied in a manner calculated to aggregate
> related accounts.
>
> Violations of exchange-set or Commission-set limits are subject to
> disciplinary action, and the Commission, or a DCM, may institute
> enforcement action against violations of exchange speculative limit
> rules that have been approved by the Commission. To this end, the
> Commission approves all position limit rules, including those for
> contracts that have been self-certified by a DCM.
>
> It is clear that speculation is an important component of the futures
> markets, but there is a point when excessive speculation can be
> damaging to the markets. As a result, the CFTC closely monitors the
> markets and the large players in the markets, in addition to position
> and accountability limits, to detect potentially damaging excessive
> speculation and potential manipulative behavior.

Conclusion:

CFTC-regulated futures markets have demonstrated their importance to the
economy, the nation's competitive strength and America's international
financial leadership. We have the means and the power to protect our
markets against speculative excesses on our markets and are committed to
doing so.

[^1]: Bubble Isn\'t Big Factor in Inflation, By Phil Izzo (May 9, 2008;
    Page A2

[^2]: During his appearance before the Senate Appropriations Committee
    on May 7, 2008, CFTC's Acting Chairman Walt Lukken stated that the
    CFTC's recent revisitation of the 2005 CFTC study using more current
    data for energy market trading affirmed the conclusions reached in
    the 2005 study. This conclusion mirrors the views of the majority of
    53 economists surveyed by the Wall Street Journal in May 2008, which
    indicated that the global surge in food and energy prices is being
    driven primarily by fundamental market conditions, rather than an
    investment bubble. Wall Street Journal, May 9, 2008, page A-2.
    Similarly, the US Department of Energy's Energy Information Agency's
    "Short Term Energy Outlook", published in May 6, 2008, evidenced the
    tightness in world oil markets, with growth in world oil consumption
    outstripping growth in production in non-OPEC nations by over 1
    million bbls/day, and dramatically increased demand coming from
    China, India and other parts of the developing world.

[^3]: See, for example, Antoshin and Samiei's analysis of the IMF
    research on the direction of the "causal arrow" between speculation
    and commodity prices in "Has Speculation Contributed to Higher
    Commodity Prices?" in World Economic Outlook (September 2006):

    "On the other hand, the simultaneous increase in prices and in
    investor interest, especially by speculators and index traders, in
    commodity futures markets in recent years can potentially magnify
    the impact of supply-demand imbalances on prices. Some have argued
    that high investor activity has increased price volatility and
    pushed prices above levels justified by fundamentals, thus
    increasing the potential for instability in the commodity and energy
    markets.

    What does the empirical evidence suggest? A formal assessment is
    hampered by data and methodological problems, including the
    difficulty of identifying speculative and hedging-related trades.
    Despite such problems, however, a number of recent studies seem to
    suggest that speculation has not systematically contributed to
    higher commodity prices or increased price volatility. For example,
    recent IMF staff analysis (September 2006 World Economic Outlook,
    Box 5.1) shows that speculative activity tends to respond to price
    movements (rather than the other way around), suggesting that the
    causality runs from prices to changes in speculative positions. In
    addition, the Commodity Futures trading Commission has argued that
    speculation may have reduced price volatility by increasing market
    liquidity, which allowed market participants to adjust their
    portfolios, thereby encouraging entry by new participants."

    Similarly, James Burkhard, managing director of Cambridge Energy
    Research Associates testified to the Senate Energy Committee on
    April 3, 2008 that: "In a sufficiently liquid market, the number and
    value of trades is too large for speculators to unilaterally create
    and sustain a price trend, either up or down. The growing role of
    non-commercial investors can accentuate a given price trend, but the
    primary reasons for rising oil prices in recent years are rooted in
    the fundamentals of demand and supply, geopolitical risks, and
    rising industry costs. The decline in the value of the dollar has
    also played a role, particularly since the credit crisis first
    erupted last summer, when energy and other commodities became caught
    up in the upheaval in the global economy. To be sure, the balance
    between oil demand and supply is integral to oil price formation and
    will remain so. But 'new fundamentals'---new cost structures and
    global financial dynamics---are behind the momentum that pushed oil
    prices to record highs around \$110 a barrel, ahead of the previous
    inflation-adjusted high of \$103.59 set in April 1980."

[^4]: http://www.cftc.gov/stellent/groups/public/@newsroom/documents/speechandtestimony/opalukken-32.pdf