stopoilspeculators.com -->> it's the DARK MARKETS, not the Enron loophole that's killing us

[nashville_brook]

http://www.stopoilspeculators.com/

Speculators and investment banks can game the energy trading markets, using loopholes in commodities law to drive up the cost of energy and reap record profits… at the expense of American families and small businesses!

One of the biggest factors in high oil prices, according to many experts, is that investors, such as hedge funds and investment bankers, can use loopholes in commodities law to manipulate the market and drive crude oil, heating oil, gasoline and diesel fuel prices to new heights. Congress is aware of the problem and lawmakers recently passed legislation to address the “Enron Loophole,” one of the major loopholes that opens the door to abusive trading practices, but the law didn’t go far enough.

Unfortunately, other loopholes exist that allow energy trading on completely “dark” exchanges. For example, the “Foreign Markets Loophole” allows American energy commodities to be traded overseas – exempt from U.S. oversight. These so-called “Dark Markets” – commodities markets that are not policed by U.S. authorities provide for an open the door to manipulation, even outright control of the markets.

For example, speculative investors can buy and sell millions of barrels of U.S. destined oil and other energy products every day in the United Kingdom and even in Dubai… but are not made subject to the transparency and accountability laws that govern exchanges here in the United States!

Additionally, through the so-called “swaps loophole,” financial investors can “game the markets” for pure profit by buying up positions in the energy markets, without any limitation on the size of the positions they can take. One recent estimate suggested that they now control one third of the commodities markets, or $150 billion - a 1,000% increase in less than five years!

Some experts believe that as much as 60 percent of the cost of a gallon of gasoline or heating oil can be attributed to pure speculation and abusive – even manipulative – trading practices, yet most trading is “dark” and federal authorities can neither fully police or see the data in the majority of the trading markets.

The energy trading markets were originally set up to provide energy producers and distributors with an environment to manage risk and produce the best possible price for their customers. But they are clearly no longer the driving force in the market. Profiteering speculators and investment banks care little about establishing a price for energy based on supply and demand fundamentals – they care about turning a PROFIT.

[readmoreoften]

1. 3...2....1 comments about the "market taking care of the problem"

followed by comments about how "communism didn't work".

Hey didn't you read the AEI publication in the other thread? There's an Upside to Income Inequality!!!!

[nashville_brook]

2. teehee -- didn't get the memo -- :)

[the other one]

3. Speculation in oil is not affecting the price

A commodity contract has an expiration date, and thus requires the owner of the cotract to either sell the contract or take delivery. If the contract is sold this pushes the price lower. If delivery is taken, storage costs are incurred. The people who are buying the contracts are not afraid of paying for storage, thus the price rise is real because the people who are bidding on it are actually buying it at the end.

[Vincardog]

5. Right keep singing that happy song sparky (60% of the price is due to speculation)

[anigbrowl]

8. You might want to look into calendar spreads

You can trade in the commodity markets without any expectation to take actual delivery. Even if your forward buys go awry and you get stuck with a future contract that's terming out, you can always just do a swap on the spot market.

[nashville_brook]

10. The Role of the Market Speculation in Rising Oil and Gas Prices, Senate Staff Report

The Role of the Market Speculation in Rising Oil and Gas Prices, Senate Staff Report

Published June 27, 2006

The U.S. Senate's Permanent Subcommittee on Investigations conducted an investigation of market speculation and oil/gas prices. They reported the following findings and recommendations:

"A. Findings

1. Rise in Speculation. Over the past few years speculators
have expended tens of billions of dollars in U.S. energy commodity
markets.

2. Speculation Has Increased Prices. Speculation has contributed
to rising U.S. energy prices, but gaps in available market data
currently impede analysis of the specific amount of speculation, the
commodity trades involved, the markets affected, and the extent of
price impacts.

3. Price-Inventory Relationship Altered. With respect to
crude oil, the influx of speculative dollars appears to have altered
the historical relationship between price and inventory, leading the
current oil market to be characterized by both large inventories
and high prices.

4. Large Trader Reports Essential. CFTC access to daily reports
of large trades of energy commodities is essential to its ability
to detect and deter price manipulation. The CFTC's ability to detect
and deter energy price manipulation is suffering from critical
information gaps, because traders on OTC electronic exchanges and
the London ICE Futures are currently exempt from CFTC reporting
requirements. Large trader reporting is also essential to analyze
the effect of speculation on energy prices.

5. ICE Impact on Energy Prices. ICE's filings with the Securities
and Exchange Commission and other evidence indicate that its
over-the-counter electronic exchange performs a price discovery
function -- and thereby affects U.S. energy prices -- in the cash market
for the energy commodities traded on that exchange.


B. Recommendations

1. Eliminate Enron Loophole. Congress should eliminate the
Enron loophole that currently limits CFTC oversight of key U.S.
energy commodity markets and put the CFTC back on the beat policing
these markets.

2. Require Large Trader Reports. Congress should enact legislation
to provide that persons trading energy futures ''look-alike''
contracts on over-the-counter electronic exchanges are subject to
the CFTC's large trader reporting requirements.

3. Monitor U.S. Energy Trades on Foreign Exchanges. Congress
should enact legislation to ensure that U.S. persons trading
U.S. energy commodities on foreign exchanges are subject to the
CFTC's large trader reporting requirements.

4. Increase U.S.-U.K. Cooperation. The CFTC should work
with the United Kingdom Financial Services Authority to ensure it
has information about all large trades in U.S. energy commodities
on the ICE Futures exchange in London.

5. Make ICE Determination. The CFTC should immediately
conduct the hearing required by its regulations to examine the
price discovery function of the ICE OTC electronic exchange and
the need for ICE to publish daily trading data as required by the
Commodity Exchange Act."

[Dogmudgeon]

4. I think there is a lot more going on

- Collapse of most of the world's major oilfields
- Inability of Saudi Arabia to rapidly increase production (essentially no increase since 2004)
- Collapse of new oil discoveries rate in the 1990s
- Deflation of the value of the Dollar, ascendancy of the Yuan (China)
- Increasing "sourness" of oil; difficult in recovery and refining
- Rapidly increasing demand from Asia
- Ability of the US/European markets to bear higher prices
- Demand by US' and other militaries
- Less-stable oil prices (mainly from Mexico, Nigeria, and Russian oil companies)

These factors are what allow -- compel -- so much gaming to occur. We are in the last few years of a golden financial age, and everyone is cashing out. The vultures are now moving in. A new stable regime is 20 years away, and it won't include oil as a dominant commodity.

--p!

[kimmerspixelated]

7. Good points, but

those are also good excuses for those making the decisions-for those manipulating the highway robbery!

[Dogmudgeon]

14. Our job is to prevent that

They will certainly use those reasons as excuses. You can bet on that like it was a barrel of oil.

WE have to hold them accountable.

There are going to be a lot of similar clusterf**ks in the next few years -- food, employment, investments, politics, you name it. The only thing that will prevent wholesale theft is public involvement.

--p!

[Raster]

15. Correction my friend. The vultures have already moved in.

They're already in government, witness cheney*/bush* and their "strip mining" approach to American government.

[anigbrowl]

6. Well, the Enron Loophole is one example of creating a dark market

I'm not sure why you say it's not this, it's that, when one is an aspect of the other. There has been a lot of moves made to shut this stuff down in the last weeks and months but I expect relatively little change in the short term because a majority of people simply have no clue about how markets work and tend to throw the baby out with the bathwater.

As an example of GOOD speculation, Southwest Airlines hasn't been pushing up its fares or inventing new and expensive ways to charge their customers. Why? Because they hedged oil at $51 a barrel so now they are making out like gangbusters. Everyone benefits - their shareholders, their passengers, their employees. Well, the other airlines lose out but that's competition for you.

Now I'm 100% down with plugging these kind of loopholes and attacking this epidemic of dark markets, but I think it's going to be a slow and painful task because maybe only 20% of people get the picture. On the other hand, there's another 60% that just don't have a strong opinion on it, and at the opposite extreme you have 20% of people who think any kind of market bigger than a convenience store is fundamentally evil and make all the more sober market reform people look bad.

[truedelphi]

19. But I think there is a rather good reason why only 20% of the people get it

People go through school and get 16 to 18 years of education and come out clueless about money. Any money, their money, the Federal Reserve's money, the taxation system etc.

It seems weird that we are required to have so many hours of driver's education before we can graduate high school, but most Americans remain clueless about the bigger picture. How come we don't have requirements on one college semester devoted to teaching us about money? And the legal system, maybe that would be worth understanding a little?

So there you are, with your engineering education bright and shiny before you. And minutes after you are hired, you sign papers saying, "Anything I invent becomes the property of my new employer." Next set of papers decrees that you will give up fifteen per cent of your pay in return for stock options. Are those stock options really going to pay off, or are you gonna wallpaper your bathroom with them?

[defendandprotect]

9. Thanks for the LINK; I heard about it yesterday on Ed Schultz but just caught

the last of it and the link wasn't clear --

[nashville_brook]

11. i heard about "dark markets" for the first on Marketplace (NPR), but can't find the

reference. glad to hear Schultz is covering it. there's a "rule of three" -- it takes at least three mentions of a story for it to lodge in the public mind. lets hope this is getting thru.

[aint_no_life_nowhere]

12. It seems that the conservative mantra is all about supply shortages

and the need to drill more. I haven't heard one conservative politician or talking head anywhere in the media mentioning any other possible cause of the rise in prices. Every single one of them, from John McCain to Kay Bailey Hutchinson is framing this uniquely as a result of lack of supply. They aren't talking about the effect of the Iraq war on oil prices. They aren't mentioning the fallen dollar that has coincidentally lost half its value while oil has more than doubled. They aren't mentioning speculators at all. What's interesting, however, is that while conservatives would rather swallow molten lead than blame speculation as even part of the problem, they immediately mention that, if we opened up the ANWR reserve, speculators would lower the price of oil even if it couldn't be tapped for years, just because of the impression that more oil would eventually be flowing. In other words, for conservatives, speculators aren't to blame but we could count on them to help lower the price of oil just because more oil would be scheduled to be drilled.

[BeHereNow]

13. Enron is now called EOG Resources. (Enron Oil&Gas)

They are drilling in the Bakken oils sands in North Dakota.
Their stock went from 65 dollars to a whopping 130 in less
than a year.

Many of the left over Enron employees are now part
of EOG Resources.

Learn more here:
http://www.fool.com/investing/value/2007/07/05/meet-the-men-who-fleeced-enron.aspx

"More Enron stupidity
Richard Kinder wasn't the only investor to fleece Enron. Mark Papa, CEO of EOG Resources -- EOG is short for "Enron Oil & Gas" -- holds that distinction as well.

Papa ran EOG when it was an Enron subsidiary. Lay and Skilling wanted to continue moving Enron out of the old economy in 1999, which meant getting rid of the oil and gas exploration business. Papa believed that exploration and development was exactly the business to be in, so he bought Enron's stake in EOG -- minus its operations in China and India -- for $600 million in cash.

The exchange has been laughably one-sided: Enron flailed, EOG Resources flourished. Today, the business is worth more than $18 billion. Like Richard Kinder, Mark Papa quietly built a fortune from Enron's castoffs."

Much more at link.

BHN

[bluesmail]

16. Isn't it the combo of both add a side of phony supply and demand

For dessert an order of "Bomb BOMB Bomb Iran" ****

[The Doctor.]

17. K+R Everyone needs to know this.

[bluesmail]

18. Remember it costs tons of money to plan and execute a winnable

WWlll.