High Gas Prices Coming from Over-Speculation, Says Analyst
By: David Dayen Wednesday February 15, 2012 9:36 am
We’ve been hearing for several weeks now that gas prices are headed up, and that has borne out. Oil is trading at a high for the month, and gas prices have ticked up, with the expectation of an average of over $4 a gallon by Memorial Day. Needless to say, this will put a crimp in any recovery by eating up more of the nation’s resources. Specifically, $4-a-gallon gas is the inflection point where fuel costs start to eat into economic growth.
What are the reasons for the price spike? Obviously, the Iranian oil embargo will be seen as a factor. And the fact that Iran has threatened to cut oil supplies to six countries in Europe will reduce supply even more. In addition, some refinery shutdowns, particularly on the East Coast, have reduced capacity.
The President added an additional possibility, the idea that “as the economy strengthens, global demand for oil increases.” But the economy is not strengthening everywhere uniformly. In fact, we just learned about an economic contraction across the entire Eurozone, including several of the world’s largest economies. If you look at the demand numbers, you find that demand is not driving the increases (h/t Pat Garofalo):
Strangely, the current run-up in prices comes despite sinking demand in the U.S. “Petrol demand is as low as it’s been since April 1997,” says Tom Kloza, chief oil analyst for the Oil Price Information Service. “People are properly puzzled by the fact that we’re using less gas than we have in years, yet we’re paying more.”
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. “Each of the last three weeks we’ve seen a record net long position being taken.”
I’ve seen this debated back and forth, but I don’t think you can deny the importance of speculation to the run-up of oil prices in 2008, and with demand so low, I don’t think you can deny the impact of speculation today. Studies have shown that Americans really are changing their purchasing behavior when it comes to energy, shifting to higher-efficiency cars. But that has not taken pressure off of prices at all. The Goldman Sachses of the world continue to make profits off of driving up oil prices.
The Commodity Futures Trading Commission had the opportunity to set position limits in the oil markets for speculators, and they simply dropped the ball on the rulemaking. They ought to return to it. Because the fate of the economy is at stake.
http://news.firedoglake.com/2012/02/15/high-gas-prices-coming-from-over-speculation-says-analyst/
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