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Closing Enron Loophole Would Drop Oil Prices 25% - 50% Overnight

Jon Ponder | Jun. 22, 2008



The way Republicans tell it, the minute we start drilling off the coasts of California, Florida and elsewhere, the price of gas will go down. In fact, it would take five years after the ban on offshore drilling was lifted for oil production to start, and, if it were lifted right now, in 22 years domestic oil production would have increased by only seven percent, according to the Energy Information Administration. Even so, “because oil prices are determined on the international market … any impact on average wellhead prices is expected to be insignificant.” (Source: Center for American Progress.)

On the other hand, Congress and George Bush could take a step tomorrow that would create a drop in oil prices of between 25 and 50 percent overnight, simply by closing the Enron Loophole.

This is according to testimony before a Senate Committee two weeks ago by 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.”
Greenberger’s testimony was brought to light by an investigation into the Enron Loophole by Keith Olbermann on MSNBC’s “Countdown” last week. (A transcript of Olbermann’s report follows.)

The Enron Loophole is the nickname for a provision written into the Commodity Futures Modernization Act (CFMA) of 2000 that was drafted by lobbyists for Enron and inserted in the bill by then Sen. Phil Gramm (R-Texas) that deregulated an aspect of the market Enron sought to exploit with its “Enron On-Line” trading program, the first Internet-based commodities transaction system. Phil Gramm is now a key economic adviser for the John McCain campaign.

While it was a technical success, Enron On-Line was based on a flawed business model that drained corporate revenues — even while the company was manipulating the rates consumers paid for electricity in California. Enron On-Line eventually drove the company into bankruptcy, and the cooking of the books to hide its losses led to charges of conspiracy and fraud against Enron executives.

The Republicans’ sudden rollout of the campaign to lift the ban on offshore drilling is really meant to shift the blame from Bush and the GOP to the Democrats and their opposition to offshore drilling. To their credit, they have done a masterful job — and it has only cost them the credibility of Florida Gov. Charlie Crist, who broke tradition in the state and came out in favor of lifting the ban. (It also sapped whatever meager credibility Crist’s predecessor, Jeb Bush, had left. Bush opposed lifting the ban when he was in office but came out wholeheartedly in favor of lifting it this weekend.)

Pensito Review » Closing Enron Loophole Would Drop Oil Prices 25% - 50% Overnight

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Very surprising article and video. I'd definitely suggest you guys watch the video as it is a bit more easier to understand than the article. Funny, how people are quick to jump on the band wagon and blame, 'foreign oil suppliers' and OPEC.

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Update

Obama Proposes Closing the Enron Loophole:

[Barack] Obama campaign’s said today that he plans to ease the impact of rising gas prices by cracking down on excessive energy speculation through closing the so-called “Enron Loophole.”


… Aides [to Obama] argued the changes to the regulatory structures could have at least some medium-term impact on gas prices. The “Enron Loophole” — so named because it was added at Enron’s behest — has kept the Commodity Futures Trading Commission [CFTC] from fully overseeing the oil futures market and investigating cases where excessive speculation may be driving up oil prices, the campaign explained in a policy paper.


Obama would close the loophole by requiring that US energy futures trade on regulated exchanges. His plan also calls for legislation that would direct the CFTC to investigate whether further regulation is needed to end excessive speculation in US commodities markets, including higher margin requirements and position limits for institutional investors.

Obama would aim to ensure that US energy futures cannot be traded on unregulated offshore exchanges and would seek to work with our other countries to establish regulations to avoid excessive speculation in commodities futures markets. He would also call on the Federal Trade
Commission to investigate market manipulation, including in the oil futures markets and ask the Justice Department to investigate whether energy traders have been engaged in illegal activities that have helped drive up oil and food prices…

“I think everyone believes there’s too much speculation in the oil markets and a lot it flows directly from that particular loophole,” said [Obama adviser New Jersey Gov. Jon Corzine]. “It might as well be called the Phil Gramm loophole, because it was snuck in at the 11th hour, 59th minute to the 2000 energy policy bill, and it just is, it really needs to be addressed. And it would have a lot of impact I think certainly in the intermediate term, if not in the short term with greater oversight here.”

Corzine said the “Enron loophole” Gramm had added to the bill took exchanges and derivative oil contracts out of supervisory oversight and had been a problem in electricity markets in California a few years ago. He said it was unlikely Gramm would push back against his own amendment..

Pensito Review » Closing Enron Loophole Would Drop Oil Prices 25% - 50% Overnight