In the United States, oil futures come in three major forms: contracts on crude oil, gasoline and heating oil. All three of these commodities are essential for the nation to operate and thrive. Unfortunately, the Commodity Futures Trading Commission (CFTC) was unable to do anything to stop manipulation of the market for the energy on which we're painfully dependent.
The CFTC was established by Congress in 1974 specifically to prevent speculation from artificially inflating the price of commodities. Over time, its powers were slowly stripped. The scope of the CFTC's power to regulate is limited to trading within the formal setting of the New York Mercantile Exchange (NYMEX). Traders on this exchange must file daily reports on exchanges so the commission can keep an eye on speculation. But speculators were able to make an end run around the CFTC's regulatory power, thanks to help from oil giant Enron.
The year 2000 was a bad one for consumers as far as oil goes. Prices remained low (less than $30 a barrel), but mechanisms were set in motion that would raise prices and vastly increase oil company profits. That year, Congress (under lobby by Enron and other oil companies) removed the regulatory powers of the CFTC over American oil futures traded over the counter (OTC) [source: Levin]. Enron had created specialized software that allowed futures to be traded OTC -- exchanges outside of the formal exchange markets. The software and what came to be known as the Enron loophole for OTC trading allowed futures exchanges without government oversight.
Also in 2000, a consortium of oil companies and financial institutions created the Intercontinental Exchange (ICE) in London to trade European oil futures, although the group was headquartered in Atlanta. Since the exchange was in Europe, the CFTC's reach didn't extend to it.
The CFTC gave up more regulatory power in early 2006 when it allowed the Intercontinental Exchange to install terminals in the United States [source: Engdahl]. Up to that point, only OTC speculators could trade outside of CFTC oversight. But once the commission allowed U.S. futures to be traded on ICE, rather than only on NYMEX, the CFTC lost its ability to regulate even formal exchanges. Once traded on ICE, an American futures derivative fell out of the jurisdiction of the CFTC. The convergence of the Enron loophole and the establishment of ICE meant the CFTC could no longer accurately police speculators who sought to drive up energy prices through futures speculation.
Whether it was speculators that drove up the cost of gas and oil is still debated. A July 2008 report by the International Energy Agency concluded that speculation had little to do with price increases [source: CNN Money]. But a report issued the following September contradicted the IEA report, pointing to correlations between the influx of money in oil futures markets and the rising cost of oil. The price of oil doubled, tripled and eventually quadrupled in step with the increase from $13 billion to $260 billion in the market from 2003 to 2008 [source: U.S. Senate].
In response to calls for better regulation of oil futures, Congress introduced the Consumer-First Energy Act in May 2008. The bill would have extended CFTC oversight to foreign markets, but the act died on the Senate floor the following June. After the bill was defeated, the argument over oil speculation changed focus. No longer was the debate over what caused oil prices to rise beginning in 2006, but how long the United States would allow speculation to continue.