Obama calls for closing the "Enron loophole"

[bascule]

http://firstread.msnbc.msn.com/archive/2008/06/22/1161113.aspx

 

Obama wishes to cut down on excessive energy speculation by closing the so-called "Enron loophole", allowing the Commodity Futures Trading Commission to fully oversee the oil futures market and investigate cases where excessive speculation may be driving up oil prices. This would occur by banning trades of oil futures on unregulated offshore exchanges while working with other countries to adopt similar legislation.

 

McCain says he'd also like to close the "Enron loophole" and blasted Obama for stealing his idea, or something, all while getting in a few jabs at Clinton for signing the bill into law in the first place (never mind the Republican Congress who authored it)

 

According to Michael Greenberger, the former director of Trading & Markets for the Commodities Future Trading Commission (CFTC), the government board that oversees commodities markets:

 

“Yes, overnight [closing the Enron Loophole] will bring down the price of crude oil to get at least a 25 percent drop in the cost of oil and a corresponding drop in the cost of gasoline. Some people estimate 50 percent.”

[john5746]

“Yes, overnight [closing the Enron Loophole] will bring down the price of crude oil to get at least a 25 percent drop in the cost of oil and a corresponding drop in the cost of gasoline. Some people estimate 50 percent.”

 

I thought about bringing this up in the Obama vs McCain thread. I think this relates to Paranoia's idea that drilling will have a speculative effect. I am not sure on this one, I think having some price increases forecasted into the equation can be a good thing - to bring about market changes quicker. Creating a bubble at the expense of the working class doesn't sound good either, but at least the money would be domestic, I think.

 

I didn't think it was that large an effect though. McCain is vulnerable on this one, his economy mentor, Phil Gramm and wife were in on the Enron deal up to their eyeballs. Guilt by association.

[Pangloss]

This sounds like a good idea. I need to know more about it, I guess, like why they wouldn't just open another market elsewhere. Though there seems to be a lot of international agreement about speculation on oil being a bad thing.

 

I don't know if this would actually lower the price at the pump, though. I read about a month ago that the commodity price had risen 70% over X amount of time while the price at the pump had only risen 30% (or something like that), so cutting the speculation off might only bring the barrel price in line with the pump price. But I don't know if that resolved itself already, or if it was ever completely accurate to begin with.

[CDarwin]

Might lowering the barrel price eventually raise the price of gas by allowing large state buyers like China to purchase more barrels and then subsidize the price? I've no expertise in economics at all, though, so I'm really just making that up.

[Aardvark]

It's simply a publicity stunt. Closing the 'enron' 'loophole' wouldn't cut the price of oil by a single cent. The idea that the rise in the price of oil is all the fault of those evil speculators is just childish scapegoating.

 

As for the 'Global' aspect of Obamas plan,

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article4167841.ece

 

''The Financial Services Authority (FSA) said that it could veto American efforts to impose regulation on the London oil market''

 

and

 

''Stuart Fraser, the City of London's policy chief, described the call as “American imperialism”''

 

Still, if Obama can persuade enough of the economically illiterate that it's speculators driving up the price of oil and nothing to do with supply and demand he might get a few more votes, and that's all this is about.

[Pangloss]

As if they're not affected by high oil prices even more than we are. That's not outrage at "American imperialism", that's an attempt to misdirect British voters from the fact that they're paying $10/gallon because their own government is gouging the heck out of them. As I understand it motorist outrage is very bad over there.

[bascule]

It's simply a publicity stunt. Closing the 'enron' 'loophole' wouldn't cut the price of oil by a single cent.

 

Why?

 

The idea that the rise in the price of oil is all the fault of those evil speculators is just childish scapegoating.

 

What do you suggest is responsible?

[iNow]

I'm not sure if this thread is or is not the best place for it, but this was a great talk with Paul Ehrlich (and Carl Zimmer). Got an hour? Spend it here. A lot of insightful comments from a man who has been researching these issues for decades.

 

http://bloggingheads.tv/diavlogs/12309

[Aardvark]

Why?

 

 

 

What do you suggest is responsible?

 

 

The price of oil is set internationally, fiddling with regulations in New York isn't going to change that.

 

As for the price rising, Supply is stagnant, demand is rising. I suspect that even Obama secretly understands that.

 

As if they're not affected by high oil prices even more than we are.

 

That's not at issue. We just aren't looking for scapegoats to blame.

 

That's not outrage at "American imperialism"

 

Umm, yes it is. It's very serious outrage at continued American highhandness and attempts to impose America regulation on British affairs.

 

 

 

that's an attempt to misdirect British voters from the fact that they're paying $10/gallon because their own government is gouging the heck out of them.

 

No. The FSA has no interest in the taxation of petrol. Their outrage over attempts to impose US regulation on the UK is, surprisingly enough, motivated by outrage over attempts to impose US regulation on the UK.

 

At no point has any UK politician or pundit tried to 'misdirect' or claim in anyway that the high price of petrol in the UK has anything to do with US speculators or this foolish regulation in the USA.

 

 

As I understand it motorist outrage is very bad over there.

 

True. And utterly irrelevant to this thread.

[bascule]

The price of oil is set internationally, fiddling with regulations in New York isn't going to change that.

 

That's a rather naive point of view, considering that the US consumes 25% of the world's oil. What goes on in America has dramatic repercussions on international oil prices.

[Pangloss]

Only 25% now? Didn't it used to be something like 50%? China and India have grown that fast, eh?

 

I'm not sure I understand your reply to Aardvark, though -- you seem to be talking about two different things. Maybe I just missed something.

[iNow]

http://www.cnbc.com//id/25606039

 

The Energy Information Administration released new numbers Wednesday that confirm Americans have been consuming less gas since the shocking runup of prices to more than $4 a gallon for regular unleaded. That should be good news that translates at the pump to a break from $4.10 gas.

 

But because their counterparts in developing countries across the globe continue to fill their tanks at will, often with gas priced artificially low because of government subsidies, there's likely to be little relief on the way.

 

"Unfortunately drivers are not going to be hugely rewarded for cutting back, at least not in the short term," said Andrew Gordon, investment director of Investor's Daily Edge. "That's the unfortunate thing. The market shouldn't proceed in that way, but we're in a global market and not a domestic market."

 

Indeed, the EIA's report, rather than providing hope for lower energy prices, instead merely drove home a reminder that even though the US is the world's largest consumer of oil, demand in the US is now only one element in an array of factors controlling the cost of gasoline and oil.

 

But foreign demand continues to accelerate even though growth in emerging markets like Brazil and India has slowed. And pressure remains on oil prices because of artificial inflators in countries including Saudi Arabia and Venezuela, where government subsidies keep gas at a bargain-basement 75 cents a gallon.

 

In the meantime, rising energy prices are squeezing the US economy, which also is beset with falling housing prices and rising unemployment.

 

Another factor in the inability of Americans to control their own gas prices is their weak currency, which makes dollar-denominated oil a more attractive buy on the world market.

[Aardvark]

iNow, None of those quotes support the idea that more regulations of speculators in New York will have the slightest impact on the globally set price of oil. In fact they are completely and absolutely irrelevant to the issue of speculation.

 

You do understand that oil is a fungible commodity don't you?

[iNow]

iNow, None of those quotes support the idea that more regulations of speculators in New York will have the slightest impact on the globally set price of oil.

I completely agree, and that's precisely why I shared them.

 

 

In fact they are completely and absolutely irrelevant to the issue of speculation.

Actually, no. Speculation is grounded in projections of supply and demand. My quotes indicated that demand is rising AND supply decreasing, as well as the fact that a decrease in US demand won't impact the market in the way most people think (since this is a global economy, not a national one).

 

 

You do understand that oil is a fungible commodity don't you?

How is your question relevant to my point that our actions here in the US may have little if any impact on the price of oil?

[Aardvark]

I completely agree, and that's precisely why I shared them.

 

Fine, simply posting random quotations without any accompanying explanation it wasn't clear what you were attempting to demonstrate.

 

 

Actually, no. Speculation is grounded in projections of supply and demand. My quotes indicated that demand is rising AND supply decreasing, as well as the fact that a decrease in US demand won't impact the market in the way most people think (since this is a global economy, not a national one).

 

Certainly, global supply seems to be generally stagnating while demand continues to rise. Some fiddling with trading regulations in the USA will have no impact on that.

 

How is your question relevant to my point that our actions here in the US may have little if any impact on the price of oil?

 

Because oil is an internationally traded commodity which is almost the perfect example of a fungible good. To put it bluntly, screw around with the market in New York and the trading will just shift to a different place. The trading and the price will be unaffected.

[bascule]

Certainly, global supply seems to be generally stagnating while demand continues to rise. Some fiddling with trading regulations in the USA will have no impact on that.

 

To reiterate, the US consumes 25% of the world's oil. There's enormous potential for the price of oil in the US to affect the price internationally.

[iNow]

One of the challenges though, Bascule, is that countries like China and Brazil are subsidizing oil prices, artificially lowering the cost to the consumers in those countries and hence driving demand skyward at alarming rates. When all is said and done, the increases in demand in those countries will very likely outweigh any decreases in demand here in the US, hence supporting and even furthering the upward price per barrel of oil.

[bascule]

As far as I can tell, Aardvark is trying to argue that speculation doesn't drive up prices... or at least that the effect of speculation in the US doesn't affect the price of oil internationally.

 

That's silly...

[john5746]

but the demand would continue to increase, so I am not convinced that removing speculation would have much of an effect. Conservation seems to be the best thing people can do in the short term. Companies could encourage it by moving to 4 day work weeks, more telecommuting, etc. That would be one short term remedy that isn't a gimmick, IMO

[bascule]

but the demand would continue to increase, so I am not convinced that removing speculation would have much of an effect.

 

According to Michael Greenberger, former CTFC director:

 

There is a theory that has gained momentum among economists and market observers that the price of crude oil is being driven up not by supply/demand principles in whole, but by speculators who are using what are called dark markets, markets that can't be watched by the public or regulators, to manipulate the price of crude oil and, therefore, gasoline and heating oil in an upward direction.

 

[...]

 

It would be as if you said you could trade stocks on the New York Stock Exchange but you could also trade stocks somewhere where the Security Exchange Commission had no idea what was going on. And at the behest of Enron in late 2000 and a lame duck Congress, this kind of unregulated trading was permitted.

[Aardvark]

As far as I can tell, Aardvark is trying to argue that speculation doesn't drive up prices... or at least that the effect of speculation in the US doesn't affect the price of oil internationally.

 

That's silly...

 

On the contrary. Of course speculation has a short term impact on oil prices, driving the price down and up.

 

My point is that the price of oil is set by international trading, oil being perfectly fungible. Closing some 'loophole' in the USA to try and restrict speculation isn't going to have any effect whatsoever.

 

And as for Michael Greenberger, if he truly believes that speculators are deliberately 'manipulating' the price of oil in 'dark markets' then he is a fool. That would require a concerted conspiracy on the part of huge numbers of oil traders, all working together, in concert to try and corner the worlds oil supply. A palpable nonsense.

 

And as for his use of stock trading as an analogy for oil trading, yet again, people seem to forget, oil is a FUNGIBLE commodity. The US Congress can try and regulate its trading all they want, all that'll happen is traders will continue trading outside the USA and continue to ignore the grandstanding ignoramuses in New York and Washington.

 

It remains a fact that the USA is utterly dependent on imported oil. Until the USA makes serious efforts to achieve energy independence the USA will remain dependent on international oil supplies and that means that the USA doesn't get to regulate the trading.

[bascule]

My point is that the price of oil is set by international trading, oil being perfectly fungible. Closing some 'loophole' in the USA to try and restrict speculation isn't going to have any effect whatsoever.

 

As I've said repeatedly, the U.S. comprises 1/4th of that "international trading". Changing things in America changes things worldwide. You don't seem to want to address that.

 

And as for Michael Greenberger, if he truly believes that speculators are deliberately 'manipulating' the price of oil in 'dark markets' then he is a fool. That would require a concerted conspiracy on the part of huge numbers of oil traders, all working together, in concert to try and corner the worlds oil supply. A palpable nonsense.

 

Nobody's arguing a conspiracy here, just that unregulated oil speculation is driving up the price. Why does it have to be a conspiracy instead of a collective effect? That's a bit of a strawman.

[Aardvark]

As I've said repeatedly, the U.S. comprises 1/4th of that "international trading". Changing things in America changes things worldwide. You don't seem to want to address that.

 

I don't seem to want to address it because it is absolutely irrelevant. The fact that the USA is completely dependent on foreign oil, that the American President has to abase himself before foreign leaders and plead for them to produce more oil has no bearing at all on the ill conceived idea that regulating oil trading in the USA will somehow reduce the globally set oil price.

 

The actions that the USA could take to reduce the oil price are to reduce imports of oil through energy substitution and efficency and to increase domestic oil production. Further regulating the New York oil market isn't going to affect the price of oil at all. You seem to have the idea that because America is dependent on foreign oil that this somehow gives America leverage to influence oil prices through restricting oil trading in America. That idea has no logical basis, it simply makes on sense. the fact remains that if oil trading is suppressed in the USA the oil trading will simply continue in the rest of the world. the prices will continue to be set and the USA will continue to accept whatever the going price is. Until America gets its house in order and reduces dependence on imported oil it doesn't get to have any control on the price.

 

 

Nobody's arguing a conspiracy here, just that unregulated oil speculation is driving up the price. Why does it have to be a conspiracy instead of a collective effect? That's a bit of a strawman.

 

No, according to YOUR quote from Michael Greenberger, there is a theory that ''speculators who are using what are called dark markets, markets that can't be watched by the public or regulators, to manipulate the price of crude oil and, therefore, gasoline and heating oil in an upward direction.''

 

That's pretty much the definition of a conspiracy. And it's also complete and utter nonsense.

[bascule]

The fact that the USA is completely dependent on foreign oil, that the American President has to abase himself before foreign leaders and plead for them to produce more oil has no bearing at all on the ill conceived idea that regulating oil trading in the USA will somehow reduce the globally set oil price.

 

Well, that belies the fact that America is driving up the "globally set oil price"... when 1 out of every 4 barrels of oil goes to America, the amount that Americans are willing to pay has a substantial effect on the price.

 

No, according to YOUR quote from Michael Greenberger, there is a theory that ''speculators who are using what are called dark markets, markets that can't be watched by the public or regulators, to manipulate the price of crude oil and, therefore, gasoline and heating oil in an upward direction.''

 

That's pretty much the definition of a conspiracy.

 

How is it a conspiracy any more than rampant, unregulated speculation?

[Aardvark]

Well, that belies the fact that America is driving up the "globally set oil price"... when 1 out of every 4 barrels of oil goes to America, the amount that Americans are willing to pay has a substantial effect on the price.

 

No, it has been clearly demonstrated that Americans will pay whatever the going price is. If the price set is $50 a barrel the Americans pay, if the price is $100 a barrel the Americans still pay it. When the price is heading toward $150 a barrel the Americans STILL pay it!

 

The ONLY way the Americans are going to effect the price of oil is by buying less of it. That can be achieved by producing more or consuming less.

 

 

 

How is it a conspiracy any more than rampant, unregulated speculation?

 

Rampant (how virile that sounds!), unregulated speculation is where lots of traders buy and sell oil, attempting to anticipate price changes.

 

Greenberger states that the traders are deliberately colluding to manipulate the price of oil.

 

The first is a market place, the second is a conspiracy. They are totally and completely different. Greenbergers conspiracy fantasy would require the coordinated action of the vast majority of all oil traders on this planet to withhold oil supplies to force up prices, with none of the oil traders breaking ranks to benefit from the higher prices and no one finding out about the mammoth organisation needed to run the conspiracy.

 

Really, if you can't tell the difference between a free market of oil traders and a pan global cabal deliberately hoarding oil to force up prices then i'm worried for you.