Congress Blames Speculation For High Gas Prices

by Don Azarias
April 1, 2012
It looks like I hit the nail on the head when I wrote about the high prices of gas being caused by rampant speculation in the oil market by those greedy oil speculators. The news report obtained by ABC News seems to buttress the validity of my claim.
Gasoline averages almost $4.00 a gallon in majority of states with the City of Chicago in Illinois ranking as the nation’s highest at more than $4.50 a gallon while Wyoming has the nation’s lowest, averaging slightly above $3.43 a gallon. The average price rose by four-tenths of a penny, according to the survey of gas stations conducted for the motorist group AAA. Gas prices are now up more than 17% this year.
According to ABC News, a joint letter signed by 68 members of Congress refers to speculation in the oil futures market as the catalyst that is costing the motoring public 15 percent or more at the gas pump and playing a significant role in rising gasoline prices. Dozens of congressional lawmakers agree that speculation is one of the causes of high gasoline prices, and they are doing something about it.
I can’t help but chuckle upon reading that those lawmakers on Capitol Hill just found out that speculation is the cause of high gas prices and that they are doing something about it. Those knuckleheads still have a lot of nerves insulting our intelligence. I’ll say that they knew it all along but, as recipients of the powerful oil speculators’ largesse, they look the other way in order to protect their principal campaign donors. Of course, this being an election year, those political leaders in the nation’s capital are trying to show off so that they won’t get booted out of office by the angry American voters. It’s fine if they’ll do something about this mess, but I’ll have to see it to believe it.
The joint letter, based on a recently updated report by the St. Louis Federal Reserve titled “Speculation in the Oil Market,” urges immediate action by the Commodity Futures Trading Commission (CFTC) to install caps on the biggest traders on Wall Street, preventing them from controlling unusually large positions in the oil futures trading market.
The Reserve’s report called “Speculation in the oil market,” which was just updated in February 2012, concluded there are two main factors for large price swings at the gas pump. It says “global demand shocks,” such as those caused by turmoil in the Middle East, “account for the largest share of oil price fluctuations.” The report also concludes “speculation played a significant role in the oil price increase between 2004 and 2008 and its subsequent collapse. Our results support the view that the financialization process of commodity markets explains part of the recent increase in oil prices.”
The Federal Reserve paper also puts a price on how much extra consumers may have had to pay at the pump during the Federal Reserve’s five-year study period, saying, “speculation contributed around 15 percent to oil price increases” during the five year period analyzed. Sen. Bernie Sanders (Independent-Vermont), has pushed for reform on Wall Street for years. “If the St. Louis Federal Reserve, a conservative institution, is saying speculation is contributing significantly to the high price of oil and gas at the pump, then I think that is clearly what the case is,” he said. Sanders has also written a letter to the CFTC seeking a change in regulations to prohibit oil speculators from driving the costs too high.
And what has the Obama administration done to increase production in our country and to lessen our dependence on foreign oil? Nothing. President Barack Obama even rejected the proposed Keystone XL pipeline from Canada out of environmental concerns. According to some analysts, this argument is no longer relevant as evidenced by 40 years of success with the Alaska pipeline. Personally, I agree with that perspective. I believe that, as a nation that’s highly dependent on foreign oil, we need to drill more while taking the necessary steps to ensure a clean environment.
The spike in gas prices has led the American public to make a premature conclusion that the U.S. and Britain may tap into the Strategic Petroleum Reserve (SPR) over the next few months in order to boost supplies and lower crude prices. But is it really a good idea? From my personal point of view, releasing crude oil from the SPR is not. The current oil crisis we are experiencing is not yet considered an emergency. There has been no sudden increase in demand for oil, nor has there been a truly significant drop in supply. And with Saudi Arabia and other OPEC members getting ready to increase oil production to make up for the loss of Iranian oil, only supports my belief that tapping crude oil from SPR is not really necessary. Only in time of real emergency or prolonged wars and conflicts with other countries should we turn to the SPR.
Pain at the pump has become a hot political issue during the presidential campaign. According to a recent Washington Post-ABC News poll, more people disapprove of how President Obama is handling the economy than a month ago despite improvement in the job market this year. Unless the high prices of gas come down during the coming months, this issue could become a political albatross around the Democratic Party’s neck. But, in fairness to Obama, even as President of the United States, he has no say when it comes to energy pricing because the U.S. economy is based on the free enterprise concept that’s inherent in a capitalistic society. However, as far as the American voters are concerned, the high prices of gas is always the fault of the incumbent president, no matter what. No ifs or buts about it.