Remember what Enron did to California and millions of investors? It took advantage of deregulation in California, manipulating electricity prices by raiding the futures market, overscheduling power lines, and creating fears about shortages. PG&E went bankrupt because it could not raise rates to customers. [1] The whole thing unraveled, and Enron went down in flames in the biggest bankruptcy in American history.
Enron was a clumsy corporate attempt to raid a captive energy market. It was also a proving grounds testing how much monkey business a single corporation can get away with. Savvy investment firms and avaricious lawyers analyzed the Enron case – realizing they could turn a huge buck on oil futures – so long as they tacitly let oil companies constrain the oil supply without manipulating the supply directly themselves.
Giant speculative investment funds and oil companies now make tremendous profits raiding the oil spot-market, playing seemingly separate but implicitly cooperative roles serving up the same end-effect as Enron wreaked on California. But this time, the victim is the American consumer, not energy producers and distributors.
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.
Oil companies grin like Howard Stern on satellite because outrageous spot market prices drive windfall profits. Record oil-company windfall profits are derived from gross internal company book-value transfers of oil products made between offshore divisions to U.S. operations – the value differential pegged to spot market prices – which also has the concurrent effect of exporting tax liabilities overseas.
Fears of global warming, fears of shortages due to weather or minor refinery disruptions, Middle-East stability, and consumption in China have turned high gasoline prices into an honorable predation in service of imaginary higher moral and political purposes.
National Public Radio first documented this problem in its story “Analyst: Blame Investors for High Gas Prices”. [2] The story revealed a truth: “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.” Ben Dell, an oil analyst and Sanford Bernstein calls it correctly, if not conservatively: “pension funds and other investors are buying oil to remove it from the market -- which can help drive up demand -- before selling it for a profit some months later”:
“I think if you saw all the pension funds walk away you'd probably see a $20 drop in the crude price." [3]
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