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Oil Price Manipulation? "Enron Loophole" Still Legal

PostPosted: Tue Jun 03, 2008 3:13 pm
by StlSluggers
I was reading an article about the on-going investigations into potential market manipulation of oil prices, and I read something that just jumped out at me as pure insanity.

CNN Money wrote:Some suggested closing the "Enron loophole" as a possible solution to the speculation problem. The loophole, which was codified in the Commodity Futures Modernization Act of 2000, allows oil futures to be traded electronically in unregulated markets outside of the jurisdiction of the Commodities Futures Trading Commission.

"Americans may be surprised to learn that the oil futures markets were substantially deregulated by the CFTC staff decisions that were made behind closed doors," said Sen. Maria Cantwell, D-Wash. "Now this London and Dubai loophole is keeping important U.S. energy trading in the dark and without proper light ... it can give manipulators free rein in energy markets."

I just want to make sure I understand this correctly:

There is a loophole so big and easy to manipulate that it is named after the greatest fraud ever committed by an American company, and it is still legal??? Is there a "Khmer Rouge Maneuver" out there that I've never heard of? Maybe that's still legal,too. I can't possibly understand how that wasn't closed when all the of SOx stuff went into place.

Although, I do chuckle when I read, "Some suggested closing the 'Enron loophole'..."

Nooo... You don't think... Maybe? :-b

Re: Oil Price Manipulation? "Enron Loophole" Still Legal

PostPosted: Tue Jun 03, 2008 4:10 pm
by Amazinz
I thought a bill just passed to close it?

EDIT: Now that I've finished reading the article... This loophole still exists because of the laws in other countries, apparently. Not that I really understand all of this. :-D

Re: Oil Price Manipulation? "Enron Loophole" Still Legal

PostPosted: Tue Jun 03, 2008 5:14 pm
by bleach168
A lot of experts believe oil should be trading at $80-90 per barrel. It wouldn't surprise me one bit if the price of oil was being manipulated.

Re: Oil Price Manipulation? "Enron Loophole" Still Legal

PostPosted: Tue Jun 03, 2008 6:48 pm
by Yoda
I have no doubt that it is manipulated. It is all based on supply and demand. Supply hasn't changed and neither has demand to the degree that the prices have gone up. Someone out there is getting filthy rich though and it isn't me.

Re: Oil Price Manipulation? "Enron Loophole" Still Legal

PostPosted: Tue Jun 03, 2008 6:56 pm
by StlSluggers
Yoda wrote:I have no doubt that it is manipulated. It is all based on supply and demand. Supply hasn't changed and neither has demand to the degree that the prices have gone up. Someone out there is getting filthy rich though and it isn't me.

Jealous? :-D

Re: Oil Price Manipulation? "Enron Loophole" Still Legal

PostPosted: Tue Jun 03, 2008 7:22 pm
by Pogotheostrich
Yoda wrote:I have no doubt that it is manipulated. It is all based on supply and demand. Supply hasn't changed and neither has demand to the degree that the prices have gone up. Someone out there is getting filthy rich though and it isn't me.

Everything I've read says the U.S. demand is down from last year. Not sure about the foreign demand.

Re: Oil Price Manipulation? "Enron Loophole" Still Legal

PostPosted: Tue Jun 03, 2008 7:33 pm
by StlSluggers
Pogotheostrich wrote:
Yoda wrote:I have no doubt that it is manipulated. It is all based on supply and demand. Supply hasn't changed and neither has demand to the degree that the prices have gone up. Someone out there is getting filthy rich though and it isn't me.

Everything I've read says the U.S. demand is down from last year. Not sure about the foreign demand.

Yeah... Demand is down about 6%-7% across the country. Locally, it varies. The Northeast is down only a couple points, while some other areas are down about 8%.

Interesting related note, Pogo. I heard yesterday that MoDot has suspended all construction on any major roadwork in the St. Louis area except for the Hwy 40 project, because the drop in consumption has cut MoDot's funding. Their funding is based on a consumption tax that is fixed at some cents/gallon. Even though price has skyrocketed, the drop in consumption has cut their budget. They are also anticipating a tax reprieve later this summer.

Re: Oil Price Manipulation? "Enron Loophole" Still Legal

PostPosted: Tue Jun 03, 2008 7:37 pm
by RugbyD
I'm in favor of this loophole, if it can be called that, because it increases liquidity. Illiquid markets are much more problematic than liquid markets, for example a very large amount of losses in the recent credit crunch had nothing to do with subprime, were completely unfounded from a fundamentals perspective, and were strictly the result of lack of liquidity.

Manipulation can happen in the markets from time to time, but in liquid markets it creates an arb opportunity. If oil really is $35 overvalued due to manipulation, there's a HUGE arb opportunity for the copious amounts of uninvested cash available to take a short position and make bazillions. Such action would naturally bring oil down to the market-clearing no-arbitrage price level.

Is so-called "smart money" really so dumb on a worldwide basis to let free money go by? Doubtful.
Is oil a bit frothy? Probably, but the main culprit is the weak dollar, not a conspiracy. So long as the Fed and the US Govt adopt policies that weken the dollar, people will continue to make the wise investment decision to use oil as a hedge against damaging economic policies instituted by the aforemention parties. Why should people be handcuffed in protecting themselves from damaging US economic policy?

FULL DISCLOSURE: I don't trade futures and if I own any oil stocks, I don't think it's much. I've been sticking to gold as an inflation hedge the past few years.

Re: Oil Price Manipulation? "Enron Loophole" Still Legal

PostPosted: Tue Jun 03, 2008 7:50 pm
by Pogotheostrich
StlSluggers wrote:Interesting related note, Pogo. I heard yesterday that MoDot has suspended all construction on any major roadwork in the St. Louis area except for the Hwy 40 project, because the drop in consumption has cut MoDot's funding. Their funding is based on a consumption tax that is fixed at some cents/gallon. Even though price has skyrocketed, the drop in consumption has cut their budget. They are also anticipating a tax reprieve later this summer.

Well I'm helping out cause I only buy gas in MO since it is usually 10-25 cents cheaper a gallon.

Re: Oil Price Manipulation? "Enron Loophole" Still Legal

PostPosted: Tue Jun 03, 2008 8:06 pm
by StlSluggers
Pogotheostrich wrote:
StlSluggers wrote:Interesting related note, Pogo. I heard yesterday that MoDot has suspended all construction on any major roadwork in the St. Louis area except for the Hwy 40 project, because the drop in consumption has cut MoDot's funding. Their funding is based on a consumption tax that is fixed at some cents/gallon. Even though price has skyrocketed, the drop in consumption has cut their budget. They are also anticipating a tax reprieve later this summer.

Well I'm helping out cause I only buy gas in MO since it is usually 10-25 cents cheaper a gallon.

Thanks! :-D ;-D