On Oil and Manipulation

June 27, 2008 1:41 am

I have been following the Enron Loophole discussions and had a conversation with Sen. Feinstein’s office last week. I was looking for answers to the very confusing timeline of a bill that initially looked as if it was not passing, but was later attached to the Farming Bill that was passed after veto attempts. See more details here.

I believe my confusion lies with the fact that the “ENRON LOOPHOLE ” is part of CFTC Reauthorization Act of 2008, which is a title attached to the Farm Bill that was recently passed. There seems to be a good deal of confusion here as the Farm Bill was initially Vetoed and then overridden. THEN it was found that 35 pages were “missing” from the original bill that was already passed. Both the House and the Senate eventually passed it with with enough votes to override veto. It is now law.

To be honest,  I am not sure I have seen such a level of obfuscation with any bill before, but that is just me I suppose.

Much of my focus of late has been the concerning fact surrounding manipulation and limited oversight of commodity future’s market…O I L !

In my research, it appears that The Enron Loophole was opened in what seems to be a less than honorable manner by Phil Graham when it pushed in as a last minute attachment to a bill as the Senate was trying to finish up for Christmas break. This is what has been blamed for helping to push oil prices up beyond the simple price/demand levels. In addition, since the loophole was opened, the Intercontinental Commodity Exchange (ICE) has been trading oil futures without U.S regulatory oversight. This is precisely what the  CFTC Reauthorization Act was designed to fix.

Just as I thought the bill’s passage has been able to close the door on excessive leverage and other manipulations of the oil futures market, I find out that it somehow does nothing of the sort. The loophole is closed, but only for the natural gas markets! HUH? How did that happen?

Well, there is now good news for those that believe that oil prices have moved well beyond any normal pattern. The House of Representatives has approved a bill on Thursday, June 26 that would provide for the Commodity Futures Trading Commission (CTFC) to enact emergency measures to “maintain or restore orderly trading.”

There has only been four times before that the CTFC has been able to utilize these broad powers and in their own words:

“The Commission has exercised its emergency powers in response to extreme events, such as manipulation or a specific disturbance that caused a sudden shock to the markets. The CFTC has never exercised emergency powers based on price trends that have developed over months or years.

Go get ’em!

Note: Make sure to listen to The Disciplined Episode Podcast # 63 as we have Professor Michael Greenberger, former CTFC Director of the Division of Trading and Market to discuss his fight against the Enron Loophole and the speculative manipulation within the oil future markets.

(Click here to subscribe via iTunes to get the
Greenberger interview as soon as TDI Podcast #63 is released)

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