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CONGRESS
NEEDS TO ACT ON ENERGY
"From
the well documented manipulation of California’s electricity market
by Enron, to the multi-billion dollar melt down of the hedge fund
Amaranth that was manipulating natural gas pricing, or or the recent
settlement of BP for having manipulated the propane markets, the
manipulation of the oil market outlined by Senators Levin and Coleman,
it is glaringly obvious that there is something nefarious going on..”
[Cromwell, CT]
Many reasons have been given recently
for the record price of oil: increased worldwide demand, lagging
production, instability in producing regions, and the weakness of the US
dollar. All of these are true. However, the one reason that many believe
is the driving factor is the one that has received the least amount of
coverage- the role played by speculative interests, such as hedge funds
and investment banks.
According to the
US Department of Energy, the price for benchmark
US
crude oil on September 7, 2007 was $68.93 per barrel. Sixty days later it
was flirting with $100 per barrel. Had world demand suddenly sky-rocketed
during the course of two months? Had a major producing country halted
production without anyone knowing? While the value of the US dollar did
continue its slide against foreign currencies it had been weak previously.
Take the results of two recent trading days as an example of the role that
speculators play in energy pricing. On Tuesday November 13, 2007 oil
prices fell $3.45 per barrel, attributed by many to the International
Energy Agency stating that worldwide demand was predicted to fall due to
high prices. What was barely reported, if mentioned at all, was November
13 was the expiration for buying crude oil options for the December 2007
contract. Which of these rationales is correct? While no one can say for
sure, oil closed on November 14, 2007 up $2.92 per barrel. Since the IEA
did not reverse their forecast of a day earlier, it appears the previous
day’s actions were more the result of the options expiration. How is it
that speculation, which has been a staple of our modern financial system
since the days of Alexander Hamilton, caused so much havoc in the price we
pay for energy?
In the lame duck legislative session in December 2000 Congress passed the
“Enron Loophole” as part of the Commodity Futures Modernization Act.
The loophole allows electronic exchanges set up for large traders to
operate without any federal oversight or regulation. Originally designed
to deregulate energy futures trading on the now defunct trading facility
“Enron Online,” the exemption has allowed the growth of unregulated
and opaque “dark markets.” Some experts estimate as much as 75 percent
of trading is conducted on these “dark markets,” encouraging excessive
speculation and opening wide the door to manipulation.
Senators Carl Levin (D-Michigan) and Norm Coleman (R-Minnesota) Chairman
and Ranking Member of the United States Senate Permanent Subcommittee of
Investigations issued a report in June 2006 that indicated some experts
felt that as much as $20-$25 per barrel of the (then) $70 per barrel crude
oil price was the result of speculative forces and unsupported by the
fundamentals of worldwide supply and demand.
Some have recently opined that the “fundamental” price of crude
oil, including the relative weakness of the US dollar, should be in the
$55 per barrel range.
From the well documented manipulation of California’s electricity market
by Enron, to the multi-billion dollar melt down of the hedge fund Amaranth
that was manipulating natural gas pricing, or or the recent settlement of
BP for having manipulated the propane markets, the manipulation of the oil
market outlined by Senators Levin and Coleman, it is glaringly obvious
that there is something nefarious going on. That this activity is going on
just outside of the reach of the Commodities Futures Trading Commission
(CFTC), the federal agency charged with ensuring the free and fair trade
of commodities, is nothing less than a travesty, and a very expensive
travesty for consumers and businesses alike.
At the end of 2006 it was widely reported that Wall Street paid in excess
of $23 Billion in bonuses to traders. In the next few weeks you will hear
of this year’s astronomical bonuses being paid on Wall Street. Remember
that while we are not receiving those bonuses, we are paying for them.
United States Secretary of Energy Samuel Bodman succinctly stated last
month, “(Oil)
prices are now set in trading rooms of New York and London and Frankfurt
and Tokyo” Its long past time for Congress to require the transparency,
accountability, and disclosure necessary to the proper functioning of all
markets, including the energy market.
It's time for Congress to pass S.2058/H.R.4066, and finally Close the
Enron Loophole. On behalf of the electricity, natural gas, propane and
petroleum consumers of our state we believe every member of the
Connecticut
Congressional delegation needs to co-sponsor this legislation, as
Congressman John Larson has, and seek its immediate passage by Congress.
For More Information See: http://www.closetheenronloophole.com/
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