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Moneycontrol.com >> Message Board >> View Messages >> Oil & Gas - Sector
   You are here :     Moneycontrol     MMB      Market View      Oil & Gas - Sector
THE ENRON LOOPHOLE AND SPECULATION IN OIL (3)   07-Jul-08 06:28Tracked by (0)  
Posted by:   howcome on ( 07-Jul-08 06:28 )Rating     
Friends,
All of us have heard of the notorious Enron scandal. Isn’t it strange that after so many years,” THE ENRON LOOPHOLE” is believed to be the root cause that has allowed US companies to speculate in crude.
Enron Chairman Ken Lay and his market-manipulating buddies persuaded Congress and federal regulators in 2000 that electronic trading markets would be more "efficient" if they didn't suffer the weight of regulation.
So, President Clinton during his last week in office, signed into law a bill that was overwhelmingly passed by Congress. It was called the “Commodities Futures Modernization Act of 2000 [CFMA]”. Basically this law attempted to resolve the dispute over jurisdiction between the SEC (SECURITIES AND EXCHANGE COMMISSION) and the CFTC (COMMODITIES FUTURES TRADING COMMISSION) . There is a clause in CFMA which is said to have been inserted at the last minute, and which exempted from regulation energy trading on electronic platforms.
This provision is believed to be the primary reason that enabled Enron to make huge profits by manipulating electricity charges and spiking it up to 300%.
At that time U.S. Sen. Maria Cantwell was responsible for making federal regulators investigate the scandal and eventually, energy companies were ordered to pay millions of dollars in refunds.
Surprisingly the Enron Loophole continued to remain effective and has been misused by the speculators for trading oil. Now, Senator Cantwell and others have called for stricter vigilance on trading in oil contracts and closing this loophole to make oil speculators make disclosures and be regulated.
Other bills pending before Congress would require speculators to have larger cash reserves, limit how much big pension funds can invest in commodity markets and restrict how many oil contracts a single trader can hold.
“It’s just crazy,” Cantwell said in an interview. “There is nothing wrong with people speculating and investing. But something is wrong when there aren’t any rules.”
Federal regulators say they have taken steps to tighten their supervision of oil futures trading, though they continue to insist there is no evidence speculators are responsible for crude oil prices moving north of $140 per barrel.
Instead, administration officials blame the increase in crude oil prices on the rising demand in China and India, OPEC’s decision to keep a tight lid on supplies, perceived supply disruptions in such places as Nigeria and the shrinking value of the dollar. Others blame environmental regulations or the move to eliminate sulfur from diesel fuel in the U.S. and Europe.
Hopefully US Govt and its regulators will act soon to cool this red-hot crude market.
Best regards,

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