Who to blame for high gas prices

By Catholic Online (NEWS CONSORTIUM)
2/29/2012
Catholic Online (www.catholic.org)

Gas prices are rising, but the culprit may not be who you think.

Speculators are driving up the price of gas, at least according to Bernie Sanders, former senator from Vermont. According to an editorial from the senator, speculators now control about 80 percent of the oil futures market and are adding a 40 percent premium to the price of a barrel of oil.

Neither tensions with Iran, nor the fundamentals of supply and demand seem to support the current prices for crude oil, leaving speculators to blame.

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LOS ANGELES, CA (Catholic Online) - Across the nation, gas prices have skyrocketed to almost $4.00 per gallon. In many places, the price is already above the $4.00 mark. Prices are forecast to rise further. Oil has already surpassed $108. Although today, prices dropped slightly to just over $106.

The quick blame is on Iran. Sanctions on Iran for refusing to answer concerns over its nuclear ambitions have raised tensions in the region to the point some fear a disruption in supply. Speculators are using the possibility of disruption to demand higher prices.

However, according to Sanders, tensions with Iran are a feeble excuse because the fundamental laws of supply and demand do not support the current prices. Indeed, speculators work outside of those laws, placing virtual bets on the future price of oil based on rumors.

Meanwhile, the futures market remains unregulated and Wall Street lawyers buck the implementation of finance reform laws that could restrict the number of futures traders can buy. With reform efforts tied up in courts, and Iran refusing to cooperate with inspectors, the climate is just right for speculators to bet ever higher on oil futures.

Unfortunately, this translates into pain you feel at the pump.

Back on Main Street, oil supplies are higher than they have been in years, and consumption of gasoline has dropped to its lowest since 2007.

Politicians have been quick to take up this issue, especially in an election year. President Obama has been warned that the spike in prices could damage the fragile economic recovery going on and the people have already been warned that any tax savings from tax cut extensions are now going into the pockets of speculators.

This isn't sitting well with the people, a particularly serious fact in an election year.

If there's any consolation, the price of oil is bound to fall, and like a game of hot potato, somebody on Wall Street is bound to lose -- big. On Wall Street, they're known as "pigs" -- investors who try to make quick profits by speculating. The danger is that not every bet can be a winner. At the first sign of good news, such as a deal with Iran that prevents war, the prices will plummet and speculators who are holding high-priced futures will have to pay those prices regardless, literally losing their fortunes in seconds.

In the meantime, the pain continues for Main Street and a fragile economic recovery becomes increasingly uncertain.

� 2012, Catholic Online. Distributed by NEWS CONSORTIUM.

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Keywords: Oil, gas, prices, speculators, speculation, Wall Street

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1 - 3 of 3 Comments

Vance
1 year ago
Whose to blame for the sky rocket prices at the pump and grocery store?? Obama and the Marxist Democrat Party. They just killed to Keystone Pipeline. Does that tell you anything? This is not a first. There is a long history of the Marxists war on our Oil and coal industries. When we waged war against Germany, what was the chief target of the war?? It was their energy production. No energy, you cripple the country. This is what their treasonous designs are. How is Obama and the Marxists going to "Transform" this nation into what they have in mind?? Bankrupt and destroy the energy industries. The two will cripple and topple a nation in no time. Airline traffic is at a "Historic Low" because the costs are high for tickets and fuel. The solution is right in front of us. Vote out the Marxists and eliminate the EPA, the The Endangered Species Act, The Dept. Of Labor. Until we throw out the Marxists, we will continue down the road to destruction.
Diesel
1 year ago
How many drivers put crude oil into their gas tanks?

The reality of the situation is that East Coast refineries are running at 60% capacity and West Coast are running at 84% capacity. A handful of refinery snags in the last week have caused West Coast prices to spike to well over $4/gal in some locations in California (as reported by CNBC on 2/28). Due to regulations enacted by the California Air Resource Board gasoline produced in Chicago, where wholesale prices are nearly $1/gal lower than LA wholesale prices, would not be allowed into California. In March and Apr there are regulations that make summer grade gasoline manditory nationwide. This low RVP gasoline is more expensive to make by about 15 cents per gallon.

The good news is that two refineries in california have been repaired and are coming back online by early march. As a result of this news (it is not uncommon for refineries to have a minor set back when trying to restart causing the refinery to be offline for another day or so) wholesale gasoline prices fell 10 cents on 2/29 alone and have fallen 20 cents since 2/24.

We've seen supply taken away from the market and prices spike. We've seen the rumor of supply returning to the market and it sells off. Sounds like the supply/demand relationship is working just fine.

Spiking prices make for great soundbites for politicians but falling prices dont. Speculators, by definition, have to be flat by futures expiration, which means they buy and sell.

Remember, your friendly local gasoline retailor sees margins squeezed when wholesale prices increase

We need a real energy plan not a collection of arbitrary regulations

Here are a couple resources for your consideration...
http://www.eia.gov/petroleum/gasdiesel/
http://www.eia.gov/pub/oil_gas/petroleum/data_publications/weekly_petroleum_status_report/current/pdf/highlights.pdf
Rob
1 year ago
This are times when you just have to beat your head against the wall. This is an instance where regulation is badly needed. The futures market has a purpose, but when used like this, it's purpose merely becomes gambling. Problem is that they will take an economy down with them.

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