Northwest chief, Steenland, urges US Congress to increase oversight of commodities trading

24 Jun 2008

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Northwest Airlines chief executive, Doug Steenland, on Monday told members of the US Congress that more government oversight of commodities is needed in order to control unregulated oil speculation, which he said was not only causing oil prices to flare but also strangulating the airline industry.

Steenland told members of the House Committee on Energy and Commerce, Subcommittee on Oversight and Investigations that it needed to close loopholes in commodities trading and increase regulation of worldwide commodities trading.

Testifying before the committee, Steenland said that fuel now constituted 40 per cent of the airline industry's operating costs, and this was set to go up further. "If the current pricing dynamic does not change, our industry will be severely challenged and will continue shrinking -- to the detriment of customers, employees and the communities we serve. It is as simple and stark as that," said Steenland.

In his testimony, Steenland said that over the past 12 months though global daily demand for oil had increased just about 2 per cent, fuel prices had doubled more than 100 per cent.  "Supply and demand fundamentals alone do not explain the price increases and volatility experienced in the energy markets," he said.

He further pointed out that an increase in speculative investments in the futures markets by financial institutions such as pension funds, investment banks and hedge funds were major factors in driving prices.

Steenland also pointed out that the volume of speculative trades on the New York Mercantile Exchange, on an average day in March, covered 1.2 billion barrels of oil, which, he said, was about 13 times greater than the actual amount of oil consumed around the world.

This volume of speculative activity, Steenland said, was excessive. Additional regulation, he informed the committee, was necessary because it "has placed upward pressure on oil prices irrespective of market fundamentals."

According to industry figures, in 2008, US airlines are expected to spend $61.2 billion on jet fuel, which will be $20 billion more than in 2007. The industry is also projected to report losses close to $10 billion for the fiscal.

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