Well, the Republican candidates and the Fox News crowd have found something new to wail about: rising gas prices at a time of year when they’re usually holding steady or falling, in spite of the fact that gas consumption is at its lowest level in 15 years. They’re right that gas prices are unusually high for midwinter, and there’s reason to worry that they may go even higher and threaten our fragile economic recovery; but they’re dead wrong about the causes, which may not exactly be news to some of you.
They’ve taken this — as they take every bit of bad news — as a pretext to bash Obama. His earth-worshipping Administration has turned off the taps! The oil industry is weighed down by the burden of regulation and limits on drilling. And the Keystone pipeline! Ah, if we only had Keystone, then gas would be free to anyone who needs it.
Baloney on all counts.
As for the castigation of the Tree Hugger-in-Chief, as Rachel Maddow showed last night, domestic oil production has increased substantially during the Obama years. It’s been consistently higher than at any point in the Bush presidency.
As for Keystone, anyone with half a brain could tell you that it won’t affect oil prices at all until it’s finished. And even then, the effect will be minuscule because the oil will go into the global marketplace. Keystone oil would make the global pool a little bit bigger, that’s all.
So why are gas prices so high?
Let’s look at that renowned Socialist mouthpiece, Bloomberg Business Week, and an article entitled “Rising Gas Prices: Not Demand Driven.” It quotes Tom Kloza, chief oil analyst for the Oil Price Information Service:
Kloza believes much of the increase is due to speculative money that’s flowed into gasoline futures contracts since the beginning of the year, mostly from hedge funds and large money managers. “We’ve seen about $11 billion of speculative money come in on the long side of gas futures,” he says.
Crude prices are so high that some refineries have cut production or even shut down rather than operate at a loss — which means lower gas production and higher prices.
This ain’t the first time we’ve ridden this speculator-driven merry-go-round. Remember June of 2008, before the mortgage meltdown? When gas and oil prices suddenly, and for no discernible reason, went through the roof? It was a severe shock to the economy, and set the stage for recession in the fall of that year.
That was a huge issue around these parts, because it came at exactly the time when heating-oil dealers were selling prebuy contracts for the winter of 2008-09. Customers bought the contracts because oil prices were widely predicted to be on an upward trajectory. There were fears of $5-a-gallon gas prices, and heating-oil prices to match.
Then, after a lot of customers signed those very expensive prebuy contracts, oil prices deflated. For the first time in memory, heating oil was much less expensive in winter than it had been the previous summer. Customers were stuck with the contracts because their dealers were just as stuck; they had prebought at summer prices.
At the time I was working for a local newspaper, and to find out why this had happened I interviewed Matt Cota, Executive Director of the Vermont Fuel Dealers Association. Not exactly an Occupy type. But he placed the blame squarely on commodity speculation.
The problem is that the trading of oil has been deregulated. And large financial players are dominating the market. A recent Washington Post article showed that 81 percent of future oil contracts are controlled by non-physical players — people who don’t own trucks, people who just trade paper.
…It’s provided volatility to a market that, frankly, is so vulnerable to volatility. We’re talking about a product that people need to get to work and to heat their homes. And for this to be used as a financial tool, so Wall Street traders can make billions, is shameful.
There has been some tightening of regulation since 2008. But to judge from the Business Week article, not nearly enough.
p.s. Some lefty commenters have posited a Wall Street conspiracy, driving up oil prices to derail the economy and torpedo Obama’s re-election effort. I might be inclined to agree, except I don’t think Wall Street is smart enough to pull it off. The Masters of Finance did the exact opposite in 2008: flushing the economy down the toilet in the middle of election season, all but assuring a broad Democratic victory. I don’t think they’ve gotten any smarter in the last four years.