April 02, 2008 8:33:AM ET By Tom Waterman Washington, DC - Huge profits, record gasoline prices and just token investment in renewable energy. That was the theme on Tuesday (4/1) when executives from five major oil companies were grilled by Congress. It certainly didn't help that independent truck drivers were riding around Washington DC and elsewhere honking horns and threatening to strike over ridiculously high diesel prices that are above $4.00 per gallon in many states and costing as much as $1,000 to fill a single rig. What was interesting is that nobody asked the oil companies why, at a time when diesel prices are out of control, that refiners are shipping diesel to Europe and South America. There is some tightness in worldwide diesel supplies, largely due to an outage at a South Korean refinery that provides a large amount of export product to the diesel community in Asia. Therefore Asian demand has siphoned off supplies from elsewhere. Much of the U.S. diesel is ending up in Chile. On the table for this round of often contentious debate were $18 billion in tax breaks that Congress is threatening to cut off, especially as the five companies have posted $120+ billion in profits in 2007. Executives from ExxonMobil, Chevron, ConocoPhillips, BP and Shell were the five majors that faced the music. "The American people deserve answers and it is time for Big Oil to go on the record about these record prices," said Rep. Ed Markey of Massachusetts, who has been pushing for this session for months. Congress is worried about the economy that has been pummeled by the mortgage crisis, a very bad housing market, and other signs that the economy is generally struggling. High gasoline prices, that reached $3.28 per gallon on Monday (3/31) just increases the anxiety and anger about rising profits at a time when just about every other aspect of the economy is struggling. Naturally the oil companies said crude oil was the culprit and it was not their fault. That's what they always say, and in many ways they are right about that. "Given that the largest contributor to the cost of gasoline is crude oil, this has translated into record-high gasoline prices," Peter Robertson, vice chairman of Chevron, said in testimony. Exxon Mobil Senior VP Stephen Simon, defended the record profits his company earned last year, indicating his company needed the profits to pay for future oil development. "We depend on high earnings during the up cycle to sustain this level of investment over the long term, including the down cycles," Simon said. One of the more comical moments came when Representative Emanuel Cleaver, (D-MO)., told the executives, "Your approval rating is lower than ours, and that means you're down low." When asked about lowering prices, the oil company officials said prices are rising as a result of factors outside of their control: increased global demand for oil led by the growing economies of China and India; geopolitical instability in the Middle East and Nigeria; and the weak dollar, which makes imports more expensive. There we have it. It was as predictable as the sun rising this morning. The same old tired excuses. The oil companies also questioned Congress for not opening up the Alaska National Wildlife Refuge (ANWR) to exploration, not to mention other areas off the Pacific and Atlantic coasts, and Florida's west coast. John Hofmeister, president of Shell said "other countries are working cooperatively with their energy industries to ensure their supply. Unless our domestic companies are allowed to compete on level ground, we run the risk of marginalizing the U.S. oil and gas industry and ultimately undermining U.S. energy supply." What about speculation? What about oil company participation in speculation? I do not hold oil company profits against them, but to hide behind the excuses that the out of control speculative market has used to engineer this scam is disingenuous. These executives know full well that there is a glut of crude oil in the world. They also know that they are exporting diesel fuel even as truckers are paying $1,000 to fill a single rig. They also know that oil producing countries are counted in the numbers of speculators. They also know that all this speculation has brought them the huge profits they have enjoyed. They are not doing anything illegal, but what is going on in commodities should be illegal. Until Congress takes a closer look at the commodities sector with the same vigor that it employs when questioning oil companies, the problems will persist. Commodities were invented as risk management tools. They provide a haven of sorts against risk for producers and consumers of particular commodities. Speculation is a necessary segment of the commodities markets to guarantee liquidity. If there is no speculation there won't be a viable futures market. However, in recent years the speculative community has grown and mutated. It has become such a powerful force that it minimizes trade participation due to huge margin calls and gyrating prices that can destroy a hedge program literally in minutes. The big commission houses have learned very well how to play the game, when to force out the weaker players and seize control of the markets. Hedge funds, investment bankers, retirement funds and every sort of financial entity is playing in the commodities arena, and the largest firms can move the markets almost at will. It is the biggest financial scam since, well, the sub prime mortgage fiasco. Actually, the excessive speculation in commodities pre-dates the sub prime mess. Do oil companies play in the commodities arena? Absolutely. Do OPEC countries play in that arena? Absolutely. OPEC countries only began about two years ago as they realized that the higher oil prices climbed, the more money they had to help assure prices continued to climb. While the CFTC tries to identify "trade" and "speculative" participation in the markets, it really has no idea just how much speculation is involved. Commodities are not doing the job for which they were intended. They have become financial instruments to be used as a hedge against a weakening dollar or economic weakness generally. For two years, commodity markets have been an ATM machine for the financial institutions of the world. The damage goes well beyond higher oil prices because more and more speculation has entered the agricultural sector as well. The premium this game has inflicted on physical commodity prices such as corn, wheat and soybeans is the major reason food prices are higher. Corn is carrying a "speculative premium" of about $1.50 per bushel. Crude oil is carrying a speculative premium of at least $30 per barrel. The shake up of the financial checks and balances, as part of the remaking of the U.S. financial markets, announced by Treasury Secretary Henry Paulson probably won't change things. It has been proposed to fold the CFTC into the SEC. The SEC has its hands full and it would have to manage this transition, which really means there will not be any increased oversight, rather less oversight. The SEC never saw the Bear Sterns collapse coming so having the distraction of merging the CFTC into its authority will simply postpone any realistic chance for better oversight of the commodities markets. After all, Paulson's background is at Goldman Sachs, so the fox will continue to guard the henhouse for the foreseeable future.