Oil Futures Issues:

1.      1. General Overview

2.    2. A Few More Details

3.   3.Who Benefits?

4.    4. Who Does It Hurt?

5.   5. A National Security Problem

6.    6. Why Ignore It?

7.    7. Is There An Oil Shortage?

8.     8. What Should Be Done Immediately?

9.     9. What Should Be Done Overall?

10.  10. What MAM members Can D

General thoughts and comments from MAM members on each issue as listed above:

1.      1. GENERAL OVERVIEW:  The change occurred with a bill signed on December 21, 2000, by former President Bill Clinton at the urging of Enron (remember them?) and other large energy traders, according to an August ’06 article in The American Thinker by Noel Sheppard.  This bill allowed UNREGULATED electronic exchanges that make it easy for large traders to manipulate the market to their advantage at the expense of everyone at the pumps, Sheppard says.  This kind of activity is not allowed in the general stock market.  Of course we should not allow it to occur with something as vital as our energy sources.  The real kicker is that anyone from ANYWHERE with a bunch of bucks to blow can get in on the action and watch American gas prices soar and our economy spiral into a recession while they just rake in the dough.

2.      2. A FEW MORE DETAILS:  “Without getting overly complex,” Sheppard explains, “on every commodities exchange in America, futures and options contracts carry a finite limit as to how many an investor may hold.  This is specifically designed to prevent anyone from cornering the market on a particular commodity.”  He goes on to explain that electronic exchanges are not now subject to these limits.  Additionally, electronic exchanges require no Large Trader Reports from its participants, which puts them outside the usual auditing and surveillance of the Commodity Futures Trading Commission(CFTC).  And, to make matters even worse, in January ’06 according to Sheppard, the CFTC decided to allow the largest electronic energy exchange, the Intercontinental Exchange (ICE), to use its terminals to trade US crude oil futures, and three months later included US gasoline and heating oil contracts.  “As such,” Sheppard warns, “investors from all over the world can trade US energy contracts without any oversight by an American regulator body.”  Analysts estimate that about one third of US crude oil futures are trading with absolutely no regulation by an American agency. Yes, it’s MADNESS!

3.      3. WHO BENEFITS:  “Giant speculative investment funds and oil companies now make tremendous profits raiding the oil spotmarket,” said David Usher, Senior Policy Analyst for the True Equality Network and President of the American Coalition for Fathers and Children.  In his article entitled Oil price gouging: From Enron with love he compares the activity of these investment funds and oil companies with the same “monkey business” that Enron engaged in as it attempted to “raid a captive energy market.”  Usher points out that National Public Radio also documented the problem in its story “Analyst:  Blame Investors for High Gas prices.”  In this story NPR said, “Investment banks from Morgan Stanley to Goldman Sachs are making so much money from oil futures that they’ve become a hot investment for all sorts of big-money players.”  So the rich get richer while …

4.      4. WHO DOES IT HURT?  Analysts estimate that the increase in the demand for energy related contracts due to the deregulation has increased the price of oil by as much as $25 per barrel, according to Sheppard in the ’06 article.  Because the price is now being manipulated by traders instead of supply and demand, it is also subject to fears and rumors.  Says Usher, “By making huge purchases of futures, they could accelerate fears, take oil offline, drive the price up even more and make handsome profits in just a few weeks or months. The word ‘hurricane’ is all it takes to provide cover for raiders to buy in … all of which has caused steep, consistent rises in baseline crude and refined prices over the past five years.”  Since 1995 Usher estimates that there has been a 566% increase in crude oil prices, and this was two years ago.  Such increases on a vital commodity that affects every individual and every business in our country are wreaking havoc as the financially marginal struggle to make ends meet in an economy where foreclosures, rising prices and struggling businesses are commonplace.

5.      5. A NATIONAL SECURITY PROBLEM:  In a world where the almighty dollar rules and money equals power, it bothers many MAM members that the exchange rate in Europe for the American Dollar is so dismally low.  To think that foreign investors, countries and even our worst enemies can invest in our Oil Futures Market to continue this spiral we are in is FRIGHTENING.  But maybe what’s more frightening than any foreign enemy is …

6.      6. WHY IT’S BEING IGNORED:    It’s obvious, of course.  Enough of the money being made by this sort of piracy is being funneled to the people who could do something about it.  Says Usher, “Federal and state politicians in both parties have failed to address this “Enroning of America” because government is on the take, too.  Taxes rise with gasoline prices, fattening political contributions while feeding slush budgets and pork barrels at both the state and federal levels.”  It doesn’t help that Bill Clinton was the president who signed the bill right before leaving office.  If George Bush had done it you can bet it would have been used against him a long time ago.  The media also is to blame for keeping this quiet.  With their advertisers in on the take it is much more profitable for them to use this issue to push their own little agendas that don’t offend anyone. 

7.      7. IS THERE AN OIL SHORTAGE?  In June of 2006 (yes, that long ago!) Senators Norm Coleman, a Republican from Minnesota, and Carl Levin, a Democrat from Michigan, released a comprehensive report, according to Sheppard, detailing how speculation on various commodities exchanges around the world is impacting energy prices.  We had to dig to find this as the media paid no attention to it, despite the report’s surprising assertion that oil supplies are plentiful.  Both Sheppard and Usher also point to data from the United States Energy Information Agency (EIA) that confirms there is no actual shortage of either oil or production capacity in relation to consumption.  In fact, as production continues and consumption decreases, supplies are now higher than they have been in 14 years. 

8.      8.WHAT SHOULD BE DONE IMMEDIATELY?  To begin with, the “Enron Loophole” that allows this unregulated trading must be closed.  Congress could simply put things back the way they were before this change with the 2000 Act.  Regulated trading would allow the kind of surveillance that would put a stop to the immediate manipulations.

9.      .9. WHAT SHOULD BE DONE OVERALL?  Since this problem is not limited to the oil futures, anything done to correct this situation should also apply to other energy sources such as electricity and home heating oil.  India’s petroleum secretary, M.S. Srinivasan, recommended a complete ban on trading of crude oil on commodity exchanges.  MAM members would suggest a ban on all energy contracts on the commodity exchange.  Congress should also focus its attention on this real problem instead of wasting its time and resources on perceived problems such as a shortage, when in fact their own data shows that to be a myth.  Even breaking up the large oil companies with legislation such as that passed in 2006 by the US House is not as important as stopping the MADNESS of allowing people to gamble with and manipulate these valuable commodities. 

Some Suggestions:  Usher joins India’s secretary in calling for a complete halt to speculative investing in critical energy commodities.  He also suggests 1.  That small investors holding retirement accounts boycott investment firms and mutual funds that invest in spot market futures.  “You do not gain by paying outrageous gas prices now only to be paid back in cheaper dollars later,” he said.  He also suggests class action lawsuits against oil producers and investment firms to recover illicit profits, and congressional hearings to interview executives in oil and utilities to discover the extent of monopolistic collaboration. Improving the value of the dollar must also be made a priority.  If a man’s muscles are weak – it does not matter how big he is.  In a contest, he is going to lose.  Money is the muscle that moves things in this world, and America’s muscle is getting weaker and weaker.  The MADNESS must stop NOW!

10.10. WHAT MAM MEMBERS CAN DO:  Find your Congressman’s telephone number, and put it in your cell phone. Then,  EVERY TIME you fill up at the pumps leave a message for him that you want something done to close the “Enron Loophole”  and to regulate oil futures trading.  I’m sure the rest of you have some other ideas … get creative, and dramatic.   We need to make a statement.  Maybe we need to get Saturday Night Live to do a skit – people seem to pay attention to that.  Talk to us … give us some ideas … then we’ll vote.  We don’t want you to just get MAD, get something done!  Join MAM today.