Congress Eyes Big Oil and Big Investors

Corrected on 4/1/08: An earlier version of this blog post misnamed a Connecticut congressman. He is Rep. John Larson.

With some independent truckers planning work stoppages today over $4-per-gallon diesel fuel prices, and Big Oil company executives being called to testify on Capitol Hill, it's a good day to ask what the federal government can or should do. Expect more protests like the one Monday in my home state of Pennsylvania, where truckers rallied at the state Capitol in Harrisburg.

It is not likely to look like the worst of the truck strikes during the 1970s energy crisis, as described in this story from the July 2, 1979, issue of U.S.News & World Report:

A violence-marred strike by independent truckers shook the U.S. economy as summer began, leaving millions of dollars' worth of food to rot and disrupting deliveries of vital fuel supplies. Thousands of independent drivers stayed off the road to protest government regulations and soaring prices of diesel fuel. Many other drivers parked their trucks for fear of violence. Produce spoiled on idle loading docks in the South and West for lack of trucks to haul it to market. Georgia peach growers halted their harvest. Pennsylvania dairy farmers dumped their milk. A Minnesota meatpacking plant that butchered 4,500 hogs a day shut down.... The Independent Truckers Association...vowed to keep striking until demands for higher freight rates, lower fuel prices and higher speed and load limits were met.

But back then, both the trucking industry and fuel prices and even the geographical allocation of fuel were regulated by the federal government. Now, the government can't do anything about truck rates. And the big trucking companies have the clout to negotiate better rates, including fuel surcharges, and can step in to take business the independents give up. The giant trucking firms also can negotiate bulk fuel deals and are better able to afford expensive fuel-saving equipment for their rigs. They are also taking other steps—like slowing down their fleets.

Right now, the independent truckers are asking the federal government to set caps on diesel prices, give tax credits to truckers, and increase regulation of the middlemen who broker truck loads—and often take the lion's share of any fuel surcharges they are able to slap on shippers on behalf of the independents.

Some of those ideas—particularly fuel price caps—will be a hard sell, particularly since so many economists believe that oil price controls contributed to the shortages of the 1970s. However, one step that Congress certainly will be considering—although it won't do much for the truckers' immediate plight—is taking away the tax breaks for the Big Oil companies. "The top five oil companies made record profits last year and yet are continuing to hold on to tax breaks that could be used to advance the clean fuels of the future," says Rep. Ed Markey, a Massachusetts Democrat, who is calling the oil executives before his House Energy Independence and Global Warming Committee today.

But later in the week, another idea for government action will get a Capitol Hill hearing. The Senate Energy and Natural Resources Committee will examine whether investor speculation is the real culprit in the run-up in fuel costs. Also, Rep. John Larson, a Connecticut Democrat, says he is drafting legislation that explores the idea of stopping oil commodity investment altogether—by restricting the daily buying and selling of crude oil, gasoline, diesel fuel, and heating oil to only those entities capable of accepting delivery of the actual fuel.

Larson has the backing of a coalition of petroleum sellers in New England, which has borne the brunt of this winter's record heating oil prices. "Supply and demand apparently no longer matter on Wall Street," said Shane Sweet, executive director of New England Fuel Institute. "It's time to protect energy commodities from Wall Street so that market fundamentals can once again drive energy prices."

The only problem with that idea: The $181 billion that is now invested in commodities through index funds and other products, according to JP Morgan Chase, up 45 percent over last year, as investors have sought a hedge against inflation and the falling dollar.

Well, the free marketers out there might not like the idea of a commodities market or price regulation, but expect to hear more about it as people grasp for ideas on what government can do. It's getting harder for people to believe that the economy can withstand $100-per-barrel oil.