- The Washington Times - Wednesday, June 4, 2008

Billionaire investor George Soros said the record oil prices weighing on the economy are the result of a “bubble” caused by speculation from index funds and a tight balance between supply and demand.

“The bubble is superimposed on an upward trend in oil prices that has a strong foundation in reality,” Mr. Soros said in testimony Tuesday before the Senate Commerce, Science and Transportation Committee. “The rise in oil prices aggravates the prospects for a recession.”

The committee is holding hearings on potential energy price manipulation. Congressional leaders are pushing the Commodity Futures Trading Commission (CFTC) and other agencies to step up efforts at overseeing the markets for fuels such as gasoline as retail prices are forcing consumers to drive less. The hearings come as oil has retreated from a record $135.09 a barrel May 22.

The average nationwide pump price for regular gasoline rose to a record $3.978 a gallon Monday, AAA said. The price was above $4 in 12 states and the District.

Mr. Soros laid some of the blame on recent oil price rises on commodity index funds, which only buy oil contracts, helping to push prices higher.

Mr. Soros attracted renewed controversy with his 10th book warning that an exploding “superbubble” threatens the global financial system, the New York Times reported April 11. The book bases its conclusions on the idea that individual inclinations and actions generate market fluctuations, rather than the conventional view that markets move toward some kind of equilibrium, the newspaper said.

The current oil market price “is a textbook illustration of my theory” on bubbles, Mr. Soros said after his testimony Tuesday. “The buying is based on a misconception” as well as a fundamental driver of higher prices, he said.

Mr. Soros said he does not consider himself an expert in oil markets and is not investing in them now. “I stay away from the oil market because it is a very tricky market.” He added “I don’t find it an attractive market.”

Mark Cooper, director of research for the Consumer Federation of America, said the current commissioners of the CFTC and Federal Energy Regulatory Commission are to blame for allowing energy prices to rise to records.

“Just fire the commissioners and clean the problem up,” Mr. Cooper told the committee. He compared the federal regulators’ reaction to recent price spikes to “the regulatory equivalent of the FEMA’s response to Hurricane Katrina,” referring to the Federal Emergency Management Agency.

“Americans are suffering needlessly due to the financial bubble” in energy prices, he said.

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