No Justification For $4 Gas, Says Former Senator Byron Dorgan

by Don Azarias
April 16, 2012
It looks like I hit the nail on the head when I wrote a It looks like most people——current and former political and business leaders, government officials, economists, analysts, consumers, taxpayers and others——are now united in their belief that the high prices of gas is caused by rampant speculation in the oil markets.
In numerous meetings held between the United States and its allies——the United Kingdom, France and Japan——the possibility of releasing billions of barrels of oil from the Strategic Petroleum Reserves (SPR) to help ease the rising oil and gas prices is being discussed. But will it do us any good when we talk about long term solution? No, absolutely not; not from our most recent experience.
We may recall that around the first week of June, 2011, the oil price was about $95 per barrel and a gallon of regular gasoline was selling at $4.00. President Barack Obama promised that he won’t tap into the SPR while implying it would be a sign of panic and wouldn’t do all that much to change the dynamics in a complicated global industry. However, a couple of weeks later, Obama ordered the release of up to 30 million barrels of oil from the SPR for refining. Gas prices fell, but the release of what amounts to about 4.5 days of U.S. crude production didn’t have much of a long-term impact.
For the readers’ information, the Obama Administration is still basing its argument on laws of supply and demand that when supply is great, prices should fall. That’s the way it should be and that had always been the basis for market analysts’ forecasts. But does that axiom still hold true in today’s oil markets?
Former Senator Byron Dorgan (D-North Dakota), who helped shape the nation’s energy policy as chairman of the Senate Indian Affairs Committee and three other subcommittees during his term doesn’t think so. He claims that the rise in the price for fuel is not an issue of supply and demand. “There is no justification for the current gas prices. This is all about speculation by the people who are speculating on the price of oil and gas. We could shutdown excess speculation in commodity markets. This government should do that. These are people, by the way, who will never buy oil and never sell oil. They are actually buying and selling things they will never have from people who never had it,” said Dorgan. “They are making money back driving up the price at the pump and the American people are the victims,” he added.
To underscore Dorgan’s claim, Sen. Bernie Sanders (Independent-Vermont), along with 70 members of Congress, wrote a letter to regulators at the Commodity Futures Trading Commission (CFTC), urging immediate action on oil speculation by enacting “strong position limits” and to “utilize all authorities available to make sure that the price of oil and gasoline reflects the fundamentals of supply and demand.” Sanders has pushed for reform on Wall Street for years to no avail.
In a study of oil prices over the last five years, the St. Louis Federal Reserve determined speculation drove up oil prices by 15 percent. But those estimates are comparatively conservative. According to Rex Tillerson, CEO of ExxonMobil, speculation could be driving up oil prices by as much as 40 percent a barrel. If that’s the case, then the government has every reason to look closely into this. I, personally, believe that this warrants a full congressional investigation.
What’s really causing the gas prices to rise widely? This question has been brought up over and over again by the anxious American consumers. And, time and time again, mainstream economists and analysts are pointing to those Wall Street oil speculators as the real culprit. These same experts are saying that the laws of supply and demand are no longer as relevant, like it was before, in determining the market price of oil. Today, Wall Street speculators control nearly 80% of this market. Many of those people buying and selling oil in the commodity markets will never use a drop of this oil. The only goal of the speculators is to make as much money as quickly and easily as they can.
According to the Department of Energy, the supply of oil and gasoline is higher today than it was three years ago, when the national average for a gallon of gasoline was just $1.90. Meanwhile, the demand for oil in the U.S. is at its lowest level since April of 1997. So why the glaring contrast? Is Big Oil to blame? Of course. But they are now only partly to blame. It’s a common knowledge that big oil companies have been gouging consumers for years. They have made almost $1 trillion in profits over the past decade from sales and through the outrageous federal subsidies and tax breaks.
The CFTC records showed that in the summer of 2008, when gas prices spiked to more than $4 a gallon, speculators overwhelmingly controlled the crude oil futures market. The commission, which supposedly represents the interests of the American people, had kept the information hidden from the public for nearly three years. That alone is an outrage that needs further government scrutiny. The American people had the right to know exactly who caused gas prices to skyrocket in 2008 and who is causing them to spike today. At this point, I don’t think there’s a need for us to wonder anymore on who the real culprits are. I’ve said it before and I say it again: The oil market speculators.