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Thank you for taking this onto the Rec list... Democrats are ignoring a goldmine  

This spring while Oil prices soared, debate festered between various factions as to whether supply/demand vs. speculators were causing the energy markets to rocket up.  In case you haven't noticed, Oil markets are crashing and only one real actual thing has happened to affect this situation, and that thing was predicted to cause this exact response.... what is it?  

The Democratic Congress CLOSED the Enron Loophole in the Farm Bill on June 22nd

Take Credit NOW PLEASE!!!  The MSM is claiming there is a fear of soft economic growth... This is laughable as oil went up and up through the spring and summer as it became common for the MSM and everyone else to talk slow growth, recession, etc... Something else happened, something the press is ignoring as well as our Party, at our own peril.

Paper trail and links to back this up below with graphs...

ABC News May 15

It’s the "Enron loophole," which exempts energy speculators who make trades electronically from US regulation. Some argue that the unregulated energy speculation, codified in 2000, can account for $20 to $25 in the jump in oil prices.

But now, 8 years after energy traders were able to push legislation exempting their electronic trades of energy futures from US regulation, a measure in the Farm Bill aims to close the loophole and subject futures trades made electronically inside the United States to US law.

"This bill is really our best bet to deter unscrupulous traders from manipulating energy prices and engaging in excessive speculation. This has been a long, hard road – and this is a major legislative victory," Said California Democrat Sen. Dianne Feinstein after the Senate passed the underlying Farm Bill on a broad, bipartisan basis.

Specifically, according to her office, the bill would "require electronic energy traders to provide an audit trail and record-keeping, monitor for market manipulation, and increase financial penalties for cases of market manipulation and excessive speculation."

More details on Sen Dianne Feinstein's amendment

The legislation increases transparency in energy markets to deter traders from manipulating the price of oil and natural gas futures traded on electronic markets. It requires energy traders to keep records for a minimum of five years so there is transparency and an audit trail. It requires electronic energy traders to report trading in significant price discovery contracts to the CFTC so that the agency would have the information to effectively oversee the energy futures market. Manipulators could then be identified and punished by the CFTC.

The bill gives the CFTC new authority to punish manipulation, fraud, and price distortion. It requires electronic trading platforms to actively monitor their markets to prevent manipulation and price distortion of contracts that are significant in determining the price of the market.

One prime genesis of the measure was the fact that, when the Amaranth hedge fund was directed to reduce its position in regulated natural gas contracts, it simply moved its position to an unregulated exchange. The bill would essentially say that similar contracts on ICE and NYMEX will be regulated the same way. Last October, the four CFTC Commissioners released a report underscoring the critical need for increased oversight in U.S. energy markets. According to Sen. Feinstein, this bill includes what they asked for.

So Sen Dianne Feinstein gets primary credit for this measure, widely reported previously by MSNBC and Keith Olbermann to have been the brain child on McCain campaign adviser Phil Gramm.

Barack Obama has strongly stood in defense of this closure while the McCain campaign defended it and then skipped the vote.  Further, Barack Obama seeks to increase the strength of closing this loophole.

"My plan fully closes the Enron loophole and restores commonsense regulation as part of my broader plan to ease the burden for struggling families today while investing in a better future," Obama said in a campaign statement.

Obama's campaign said the candidate would go further by requiring that U.S. energy futures be traded on regulated exchanges.

Obama also would ask the Commodity Futures Trading Commission to consider whether traders should be subject to higher margin requirements. He also would work with other countries to regulate energy markets and press the Federal Trade Commission and the Department of Justice to investigate possible market manipulation.

The campaign said Obama's proposal is part of his broader energy strategy that calls for reducing oil consumption by 35 percent by 2030.

This was all predicted beforehand.

On the other hand, in a single step tomorrow --- closing the Enron Loophole --- Congress and George Bush could create an overnight drop in oil prices of between 25 and 50 percent. 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," Greenberger testified, "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."

And what's happened to oil since June 22nd, that date that the Bush/McCain vetoe was overridden by the Democratic Congress?

Light Sweet Down HUGE

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Brent Crude Oil Down HUGE

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Home Heating Oil down HUGE

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If Barack Obama and the Democratic congress want to break through on the Energy issue, I strongly suggest that they highlight this success loudly and often as Gas prices plummet on corner after corner while credit is clearly due to the action taken with this closure.


Update:
The great oil bubble has burst

Almost like clockworth, the press is starting to notice that Supply and Demand simply don't mesh with today's reality.

Bad news from the Baku-Tbilisi-Ceyhan pipeline - an installation that may not normally draw much of your attention, but which is a throbbing artery of global energy supply, carrying vital oil supplies from Central Asia towards a tanker terminal on the Turkish coast. On some remote, sun-baked plain of Anatolia, an explosion sparked a fire earlier this week, temporarily cutting the flow through the pipeline.

But guess what? Here's the good news: the oil price did not zoom upwards in response, not a blip, barely a flicker. Actually the price of a barrel of crude has been falling: from a peak of $145 in early July, it came down to $117 and was trading yesterday at $120. That's almost a 20 per cent drop in little more than three weeks.

Just possibly, it means that what investors refer to in shorthand as the great "oil up" story has finally revealed itself not as the fundamental reflection of scarce supply that its adherents liked to claim, but as a simple, speculative bubble that was always going to burst.

Oh, and Russia invaded Georgia... and oil still drops.  Pure supply and demand talk provides cover for the speculators and the speculators are the gasoline on the fire so to say...  as soon as the price turned around, with the Enron loophole gone and no longer allowing traders to legally manipulate the price, the floor falls out...

The only questions now are:

How far will it fall?
 - $60~$100 by October?
Who will take the credit?
 - Obviously no new "supply" came, rather demand dropped... Inflating tires drops demand, so does conservation and efficiency... Demo win
 - Enron Loophole closure shut down speculation.... Demo win

UPDATE II: More Action Needed

Hat Tip to the most excellent catch by skymutt for an essential reading primer article that more clearly spells out what happened... I'll summaries here, but you can read the whole thing here

I. What is Speculation exactly

Here's how speculation works. Essentially, a speculator can buy a stock and keep buying shares of that stock. Every time that person buys the stock, his shares from the day before would be worth more. He could do this day after day and the price of his holdings would keep moving up. The person could make a ton of money on his trailing positions. Since the speculator can use huge leverage, money is free and almost unlimited.

"Add to the speculation the fact that major financial firms are essentially stoking the fire to their own benefit," says Horowitz. "I discussed this phenomenon in a recent podcast with Greenberger, and he basically confirmed my fears. Investment firms--Goldman Sachs and Morgan Stanley, for example--make predictions about how high oil prices could go. Goldman has predicted $200 while Morgan Stanley made a prediction that prices would reach $150 by July 4. Greenberger said that many suspect these firms have bets heading in the direction of their predictions."

II. What did the bill actually accomplish

As it turns out, says Horowitz, the passing of the recent Farm Bill gives reason to believe that there might be. The Farm Bill includes a provision called the CFTC Reauthorization Act, which closes the Enron Loophole for the natural gas market. The Act leaves open what is called the London-Dubai Loophole, which allows US contracts for crude oil traded online through foreign exchanges to go unregulated even though the computers being used for the trading are in the US.

III. Work still ongoing; i.e. a CAMPAIGN ISSUE!!!!

However, now there is work being done on the Hill to close up the London-Dubai Loophole. On Thursday, June 26, the House of Representatives approved a bill that would allow the CFTC to enact emergency measures to "maintain or restore orderly trading." The catch is that the CFTC has said it will use this power to curb only manipulation, not speculation.

"When I spoke to him recently, Greenberger pointed out that there is a new piece of legislation from Congress that if passed instructs the CFTC to look for manipulation in all markets," says Horowitz. "The idea is that just the passing of such an Act could start to bring down the price of oil because traders who are back under the watch of the public eye won't try to get away with some of the things they have been doing.

So essentially while it's not directly linked to the Oil markets, there is legislation out right now and by virtue, campaign issues, which can certainly tamp down market manipulation via regulation by closing the London-Dubai Loophole (new talking point?) and rooting out manipulation.

Comments below suggest that dampening global demand may also be to blame. Also obviously changes in the Euro and improving dollar are also lowering oil prices.  However increased regulation via legislation likewise does have an effect; more of an effect infact than simple "calls to drill more" which are little other than hot air.  Regulation makes Manipulation illegal, and creating a regulatory environment to crack down on this practice will both be a political winner and an effective tool in mitigating energy price increases.  Pointing to lowered energy costs and taking credit for it is a winner for Democrats IMO... one they need to seize upon as there is more opportunity to push further loop hole closures and regulation to prevent oil from going nutz again...

Originally posted to Steven R on Fri Aug 08, 2008 at 10:28 AM PDT.

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