Obama's Plan to Crack Down on Excessive Energy Speculation. Will This Help?
@lloydanthony111 (4698)
United States
June 22, 2008 10:16pm CST
Senator Obama announced a plan today to crack down on excessive energy speculation and fully close the “Enron Loophole” to ease the impact of skyrocketing gas prices. The Enron Loophole was created by McCain campaign co-chair Phil Gramm at the behest of Enron, and exempts most over-the-counter energy trades and trading on electronic energy commodity markets from regulation.
In his statement, Senator Obama explained:
For the past years, our energy policy in this country has been simply to let the special interests have their way—opening up loopholes for the oil companies and speculators so that they could reap record profits while the rest of us pay $4.00 a gallon.
My plan fully closes the Enron Loophole and restores common-sense regulation as part of my broader plan to ease the burden for struggling families today while investing in a better future.
The “Enron Loophole” was slipped into law by Senator Phil Gramm in late 2000 at the behest of Enron lobbyists to exempt some energy traders from the regulations and public protections applicable to exchange-traded commodities. As a result, the Commodity Futures Trading Commission (CFTC) is unable to fully oversee the oil futures market and investigate cases where excessive speculation may be driving up oil prices. Many economists believe that the speculation could be adding between $20 and $50 to the price of every barrel of oil.
Independent experts agree that excessive speculation is elevating oil prices:
Michelle Foss, Center of Energy Economics at University of Texas: “[G]iven that inventories of crude and products are healthy in many locations and that the very real risk of supply disruptions has so far been avoided, the remaining factor left to balance the price per barrel is speculation. The role of speculation in oil markets has been widely debated but could add upwards of $20 to the price per barrel.” [Oxford Institute for Energy Studies Working Paper, 2/07, http://www.oxfordenergy.org/pdfs/NG18.pdf, p. 34].
Larry Chorn, Chief Economist of Platts: “says the actual costs incurred in producing the most expensive oil is only around $70 or $80 a barrel, meaning that about $50 of the current price represents ‘the market's risk premium plus speculation.’” [BusinessWeek, 5/13/08, http://www.businessweek.com/bwdaily/dnflash/content/may2008/ db20080513_734146_page_2.htm].
Senate Permanent Subcommittee on Investigations: “Several analysts have estimated that speculative purchases of oil futures have added as much as $20-$25 per barrel to the current price of crude oil, thereby pushing up the price of oil from $50 to approximately $70 per barrel.” [Staff Report, 6/06, http://levin.senate.gov/newsroom/supporting/2006/ PSI.gasandoilspec.062606.pdf].
Clarence Cazalot Jr., CEO, Marathon Oil: “$100 oil isn't justified by the physical demand in the market - it has to be speculation on the futures market that is fueling this.” [CNNMoney, 11/12/07, http://money.cnn.com/2007/11/12/markets/oil_hundred/index.htm?postversion=2007111216].
Do you think that Barack Obama's Plan to Crack Down on Excessive Energy Speculation will help bring the price of gasoline down?
I think it's a great first step. What is your opinion?
Lloyd
1 person likes this
5 responses
@speakeasy (4171)
• United States
24 Jun 08
Actually, I do not beleive this will help for a very simple reason.
Any time you increase a company's cost and/or decrease it's profits; the company responds by increasing it prices even more so that it can maintain its profit level.
So, closing this loophole WILL cost the oil companies money decreasing their profits; and, they will pass that extra cost on to the consumers so they will still end up with the same amount of profit. So this will actually make the cost of fuel increase.
If you do not believe me, just take a look around at what the high cost of fuel is already doing. As gas prices have increased, companies have already done things to decrease their costs (fire people) and raise the cost of their products. Just walk through any grocery store and compare current prices with the price they were last year this time.
1 person likes this
@speakeasy (4171)
• United States
24 Jun 08
But, you are assuming that the oil companies and their executives are not some of the ones who are doing the speculating.
Most of the major speculators are "hedge funds" and "institutional investors". So the oil company's name or the oil company executives name does not openly show that they are speculating - that would be insider trading; remember Martha Stewart.
But, major companies and company executives often have investment portfolios (even governments do - towns, cities, counties, etc.). By investing in funds which will influence the sale price and demand for their product - they are helping their company while lining their own pockets - but since they are not the ones managing these "funds" they are not considered to be "responsible" for the actions of the "fund".
Obviously, they are not the only ones investing in these funds; but, if someone were to dig below the surface I believe you would find that they are involved and Obama's plan would hurt their profits.
@lloydanthony111 (4698)
• United States
24 Jun 08
I disagree with you. The added costs associated with people specualating on oil and gas doesn't affect the company's cost.
Fadel Gheit, the managing director and senior oil analyst for Oppenheimer & Co. Inc. said Monday that oil prices are "likely to go higher" due to excessive speculation in the oil markets.
"Over the last 12 monthâ?¦oil has more than doubled," Gheit said in testimony before the House Energy Committee's subcommittee on oversight and investigation. "But industry fundamentals are little changed."
Gheit added that there is nothing he could think of, with the exception of the decline of the dollar, that would have impacted fundamentals and boosted oil prices.
"Oil prices do not reflect market fundamentals," he said. "We can produce profitably at less than half of the current price levels."
This basically means that the demand for oil is not what is causing the prices to increase. If that were the case we would be seeing gasoline shortages by now. But instead there is a ample supply.
Lloyd
@ladyluna (7004)
• United States
23 Jun 08
Hello Lloyd Anthony,
For the love of Pete, would you please point out in this article what Senator Obama's plan is???
You've asked us what our opinion is of this plan, yet the article makes no mention of what the plan is. This is what is meant by the millions of Americans refering to Obama as an "empty suit".
All this article says about Senator Obama's plan is:
"My plan fully closes the Enron Loophole and restores common-sense regulation as part of my broader plan to ease the burden for struggling families today while investing in a better future."
How can I give you an education opinion about that non-statement???
If it sounds like I'm aggravated, it's because I am. For many, many months I have been sharing my thoughts and concerns about how commodities speculators have been artificially inflating the cost of crude.
For many, many months I have pointed out that the idea of a commodities market is over 6,000 years old. And, that by design it should comprise only perishable food crops. Oil is not a perishable food crop, it should therefore not be on the commodities market.
Why am I peeved? Because there is a smart way to eliminate the effect that commodity speculators can have on our lives & wallets.
Then, there are really stupid ways to disempower day traders & speculators.
Lloyd, if you want an informed opinion about Senator Obama's plan, you have to present the plan for review ... not just some flowery statement from Obama claiming to have a plan, and that it will work.
@rodney850 (2145)
• United States
23 Jun 08
LadyLuna,
It seems to me, congress has already addressed this issue and so far I can't find where the president has signed or vetoed it but here is the article:
http://www.tradingmarkets.com/.site/news/Stock%20News/1569538/
Don't you hate it Obama when congress steals your thunder!
@ladyluna (7004)
• United States
23 Jun 08
Greetings Sir Rodney,
Thanks a bunch for this follow up.
OK, so Obama is going to 'fix' what Congress 'fixed' in March of this year?
Well, that's just ducky! Because the hodgepodge of toothless nonsense outlined in the article as the 'fix' will do nothing about the alluring appeal of oil speculating! The allure won't lose its glamour until the 'pony up' minimum is raised to disqualify the weekend warrior, and delusional gamblers.
Plus, unless the penalties are such that they offset the gains, why bother? The estimate is that 40-45% of oil speculation is being traded by union pension fund managers, who have no compunction about paying a fine with someone else's money.
So, we're back to square one, trying to get any legislator to pay attention long enough to wrap their heads around exactly how speculating is artificially inflating the cost of fuel.
Grrrrr!!!!!
@rodney850 (2145)
• United States
23 Jun 08
I agree with you totally on that score! The commodities market was started so farmers could hedge against losses in their crops. Why then do we have to have everything from eggs to platinum to municiple bonds in the commodities market? I don't believe, however that increasing the margins will solve the speculator problems. The average "Joe" who dabbles in the commodities market usually looses his a$$ (experience talking) and raising the margins only insures the average "Joe" is excluded. You still will have the milti-millionares trying to corner markets and artificially inflate markets for profit. I liked your idea to take oil based commodities off the speculation market!
1 person likes this
@mtdewgurl74 (18151)
• United States
23 Jun 08
I am glad that something is being or tryig to be done with these gas prices. I do hope that it works and that they don't find other loopholes to do it again. Something needs to be done and I am glad he will be there doing something and standing strong in hi beliefs while others are sitting back cooling their heels doing nothing except cooking up other schemes to raise other things to make a fast buck.
@lloydanthony111 (4698)
• United States
23 Jun 08
This is what I like about Barack Obama. He has fresh ideas to deal with the problems that Americans face everyday.
Both Bush and McCain know that speculation has a lot to do with higher fuel prices, but they both stick their heads in the sand.
In Obama's case, just the threat of doing something about this problem just might start to alleviate it.
Lloyd
@mtdewgurl74 (18151)
• United States
23 Jun 08
I would like to think their heads are a little higher to the north then the sand on the ground, about 3-4 foot higher depending on the length of their legs...We should know that bush isn't going to do much he is a oilman himself and he wouldn't want to hurt those profits he has coming in especially with him in the way out of the White House. I am sure he well want to be lining his pockets with as much cash as he can while he is still in authority. I am so glad we are in for a few changes something needs to shake up the goverment and wake up a few people and set things right and on the right path. I am hoping that Obama can do that. I don't like Mc Cain much or his views. So lets get this world shaking and rolling with new changes and McCain and the others shaking in their boots.
@mtdewgurl74 (18151)
• United States
30 Jun 08
Thanks for the best response Lloyd I really appreciate it alot.
@jillmalitz (5131)
• United States
23 Jun 08
I don't know. Speculation is a part of the problem. People make money that way. My father used to play the options market occasionally. That was speculation. You have to also factor in the huge increase in demand for oil in China and India. Supply and demand. But the problem with having a plan for anything is getting others to understand the need and agree to the plan without strings or an under the table, back room deal type mentality. Business wants to make money and while we all hate to see the huge profits they make until these companies decide to do the right thing and use the profits for the benefits of mankind, we are not going anywhere. This goes for all the special interests and lawmakers in Washington as well as all the 50 states.
@lloydanthony111 (4698)
• United States
24 Jun 08
Hi jillmatitz. I agree with you that speculation is part of the problem. From most estimates it adds around $50 to each barrel of oil.
I'm glad glad your father played the options market and hopefully he was successful. But I'm sure his speculations didn't have the impact that speculation is having on world markets today.
The thing I like about Obama's plan is that it is intellegent and well thought out. Hopefully that will encourage others to agree with them withought any strings attached.
No one wants to see businesses not make money, but they need to do it in a way that is best for the business and the American people.
The well-being of the American people should be their main concern.
Thanks for your well thought out, non-hysterical reply to this discussion.
Lloyd
@anniepa (27955)
• United States
23 Jun 08
I totally agree, Lloyd. This is one more issue on which McBush did one of his famous flip-flops - a few years ago he was in favor of closing the Enron Loophole but now he's against it. It's very clear that a McBush Administration will be more of the same catering to mega-corporations over the good of the people.
Annie
@lloydanthony111 (4698)
• United States
23 Jun 08
It appears as if some people have forgotten the Enron legacy.
At the beginning of 2001, the Enron Corporation, the world's dominant energy trader, appeared unstoppable. The company's decade-long effort to persuade lawmakers to deregulate electricity markets had succeeded from California to New York. Its ties to the Bush administration assured that its views would be heard in Washington. Its sales, profits and stock were soaring.
On November 19, 2001 Enron disclosed to the public further evidence of its critical state of affairs. Most pressingly that the company was facing debt repayment obligations in the range of $9 billion by the end of 2002. Such debts were "vastly in excess" of its available cash.
Thousands of Enron employees and investors lost all their savings, children's college funds, and pensions when Enron collapsed.
Now we see some of the same characters from the Enron day involved in the oil speculation that's lowering the standard of living for a large percentage of the American population.
When will we ever learn?
Lloyd
