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Business Title: Oil: Don't Wait on Obama By Ed Wallace After three months of reading oil reports I concluded that, in terms of legitimate discovery pricing for crude, today's oil market does not line up with reality. While I said so in the Star-Telegram last weekend, a similar column of mine came out at BusinessWeek on the 19th of the month and immediately became their most read story that day. They say that timing is everything: Two days later President Obama said he would put together a task force to investigate, seek out and report any "fraud or manipulation" in the oil markets. This task force, apparently, would answer to Eric Holder, our Attorney General. And immediately the Associated Press quoted Holder as saying, "It is also clear that there are lawful reasons for increases in gas prices, given supply and demand." That column continued, "Given that no evidence has yet surfaced of actual fraud or price manipulation in [the] oil market, Obama's remarks appeared, at least in part, as more of an attempt to assuage public anger over rising gas prices." Then last Saturday, Reuters offered a follow-up article which stated, "Barack Obama told Americans on Saturday that there is no magic bullet to bring down high gasoline prices ..." Really? This all seems so strange. In 2008 this same Barack Obama, albeit then running for the White House, had plenty of so-called magic bullets to shoot at the high price of oil. Moreover, he was fully aware of what was causing the oil spike of 2008 - which happens to be the same things pushing prices up today. Collective Memory Loss It's bad enough that we forget Obama's campaign pledges, but he at least should remember them well. So should his opponent, Senator John McCain. In the 2008 election's last months, this same John McCain suggested that the only way to lower oil prices was more drilling in the Gulf of Mexico. Remember his catchy "Drill, Baby, Drill" slogan? But even as he first uttered that phrase, McCain too knew what was really behind rising oil prices. It turns out that on June 22, 2008, three weeks before oil peaked at $147 a barrel, Obama said that if elected president he would crack down on speculators in the energy markets to rein in runaway fuel costs. The same Reuters article that discussed candidate Obama's plans to put sanity back into commodities trading also quoted Jon Corzine, then Governor of New Jersey and a former CEO of Goldman Sachs. Corzine backed up Obama's position, saying, "I think everyone believes that there's too much speculation in the oil markets." In case you don't remember, Obama's plan was simplicity plus. He wanted to close the "Enron Loophole" that exempted many energy traders, letting them place bets on oil electronically and outside the regulation of the Commodities Futures Trading Commission, on the dark and unregulated exchange. He also wanted to investigate how the higher leverage amounts speculators were using extended the price impact of their oil bids. Basically, Obama was going to nullify part of the Commodities Modernization Act of 2000. That would end oil trades on the "dark" unregulated futures markets. It would also cut back on how much those speculators could borrow to put with the actual cash on their bets. And to prevent any misunderstanding of Obama's position on that day, his campaign released this unusually specific statement: "The [Enron] loophole is one example of the special-interests politics that put the interests of Big Oil and speculators ahead of the interests of working people." The Bipartisan Shaft Now, for those who still believe that John McCain's plan was really just, "Let's drill more in the Gulf and solve the problem," McCain's top economic advisor, Douglas Holtz, told Reuters that John McCain had been working hard, even breaking ranks with fellow Republicans, to close the Enron loophole. McCain spokesperson Tucker Bounds added, "The truth is Barack Obama is following John McCain's lead to close a Wall Street loophole that was signed into law by President Bill Clinton." Are you confused yet? What we had here was both candidates for the Presidency of the United States taking the exact same position on why oil had gone to $147 a barrel and gasoline prices to over $4 a gallon here. You can't get any more bipartisan than that. Even a former CEO of Goldman Sachs had confirmed that excessive speculation, not real world oil supply and demand, was the reason that oil prices were so high. But McCain's spokesperson made it sound partisan, laying the blame for the legislation that caused these financial issues on Bill Clinton's White House desk. However, he intentionally failed to remind everyone that the real drivers of that legislation were not just Bill Clinton, Treasury Secretary Robert Rubin and Rubin's successor, Larry Summers. Alan Greenspan, then head of the Federal Reserve, and our own Phil Gramm in the Senate were also driving this legislation forward. Yes, unraveling the intelligent regulation of our financial services industry was truly a bipartisan effort. And within seven years of that legislation's taking effect, namely in August of 2007, oil's skyrocketing price was causing oil demand destruction worldwide. But, as oil demand fell worldwide, for the next 11 months the price of crude continued to climb, finally reaching $147 a barrel nearly a year later. And all the time we were told that oil demand was so high that it justified those prices. It was into that mess in June of 2008 that Obama made his promise to undo the parts of the Commodities Futures Modernization Act of 2000 that allowed dark, unregulated markets to manipulate the price of oil - not through any known fraud, but simply because there was no longer anyone governing commodities trading. Massive amounts of money, combined with non-supply/demand-based "bids" for oil, flowed into those commodities. And it was all that money and those irrational bid prices, not an insufficient supply, that drove oil prices through the roof. And it's happening again today. Move the White House to Wall St. Sure, it's only been three years, but one wonders why President Obama hasn't followed through on his stated intention to actually undo the damage created by that 2000 law. Come to think of it, that law was also a major reason that natural gas prices were manipulated during the same period, which in turn caused electric rates to skyrocket here in Texas and other deregulated markets. In the case of natural gas, blame Amaranth Partners for the manipulation: Placing excessive orders at far too high a bid price, they drove the market up; when they didn't bail at the right time, they collapsed into bankruptcy. For what it's worth, for his actions back in 2005 the actual trader for Amaranth was fined $30 million last week - not much when his moves had cost Americans billions. Parts of that "Futures Modernization" law also enabled Wall Street's geniuses to burn down the entire world's financial system just before the 2008 election. From the day he entered office, looking at near complete economic devastation, Obama knew what had caused it. The Commodities Futures Modernization Act of 2000, the repeal earlier of the Glass-Steagall Act and 30 years of deregulation of the financial services industry had unleashed the forces responsible for that ruin. Still, Obama did nothing. He's still doing it. Today he has called for a task force to study "fraud or manipulation," but not the issues that he knew - knew, mind you - caused the problems that he spoke about in June of 2008. And now our Attorney General guts even that token "attempt" by saying there are legitimate reasons for commodity prices to be where they are. The only thing that could make the President's new "task force" more insulting would be if he staffed it with Larry Summers, Alan Greenspan, Robert Rubin and Phil Gramm. Gentlemen Keep Promises But let's not let McCain off on this either; he didn't win the White House, but he's still one of America's most powerful Senators. He couldn't wait to say Obama was trying to steal his political thunder about ending this commodities foolishness in 2008, so why hasn't he put forward the legislation to do that by now? He said he knew how to stop speculators from controlling prices beyond legitimate supply and demand issues. Obama said he knew the same thing. And even the former head of Goldman Sachs weighed in and agreed with them. Yet nobody's done a thing to fix it yet. And people wonder why I don't vote. The same day my column appeared in BusinessWeek, five days before a similar piece appeared here, Exxon CEO Rex Tillerson spoke to the Financial Times. I'll supply his quotes and leave you to decide whether oil prices are correct today: "The market is well supplied, with inventories in the U.S. at near-record levels and stock levels in Europe and Asia within the normal range. So there's plenty of oil on the market. Libya is not causing a major headache and [Exxon] did not have any particular difficulties in finding alternative crude supplies. I see early signs of consumption growth destruction. The Saudis did make available additional crude; what they found ... [is] nobody was buying it." That's right. Buyers are turning down oil, but the price keeps climbing. Someone should send Obama and McCain their 2008 promises, courtesy of Reuters. © 2010 Ed Wallace
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