Last week, the New York Times concluded a story about the day on Wall Street with an interesting -- and telling -- dichotomy about the cause of skyrocketing gas prices:
[The market for oil] remained volatile as The Associated Press reported that Saudi forces had opened fire on protesters. In addition, violence escalated in Libya, where rebel fighters fled Ras Lanuf, the strategic refinery town, under ferocious rocket attacks and airstrikes by forces loyal to the Libyan leader, Col. Muammar el-Qaddafi.Though the Energy Information Administration reported this week that crude inventories in the United States rose 2.52 million barrels, traders seemed concerned about possible disruptions in supply.
Even as American oil supplies remained secure and ample -- even as domestic oil production is at its highest level since 2003 -- the price of crude in the commodities market is spiking ever upward. The price of gasoline has gone up more than 40 cents over the past three weeks nationally, and it continues to trend higher. Tom Kloza, head of the Oil Price Information Service, said that not only could gas prices continue to rise, but if unrest continues in the Middle East, the cost per gallon could spike to $5 or more.
While that fear is real, it relies on false causation. The two leading exporters of oil to the United States aren't even in the Middle East; they are Canada and Mexico. Plus, today's drilling technology is making oil shale in North Dakota, California, and Texas financially viable. Market analysts predict that oil from these sources will reach 30 percent of current U.S. production by 2015. So with secure, full reserves, increasing domestic production and reliable continental suppliers, why are prices astronomical and volatile?
Recently, a rumor that Libya's long-time ruler Muammar Gaddafi had been shot tore across the commodities market, sending U.S. crude oil futures down more than two percent. Other rumors have had similar immediate and sweeping effects, even without real changes in actual oil production or reserves. The cause is oil speculators, such as hedge funds, who buy and sell commodities, profiting by betting on short-term price changes.
These traders are making money on quick movement, wagering on rumors and market blips. They are buying and quickly re-selling commodities they have no intention of actually holding or using. Their opportunism is once again hitting working-class families across the country, increasing the burden on small business owners and farmers, and elevating the cost of summer travel. In fact, according to analysts at Societe Generale, if the price of oil today reflected just current supply and demand, it would cost approximately $20 less per barrel. According to NPR, that extra $20 is what traders call the "geopolitical risk premium."
The framework to address the problem is in place, and it begins with diluting the influence of speculators. Companies that actually take possession of oil and gas have argued passionately for years that stabilizing gas prices requires limiting the impact of speculation. Now, because of tools established by the Wall Street Reform and Consumer Protection Act, which the President signed into law last year, we are poised to curb speculators' influence and return to reason at the pump. Right now, speculators outnumber traders who buy and sell for their own consumption, four to one in the previously-unregulated derivatives market. Meanwhile, high-frequency trading -- the type used for short-term profit -- accounts for one third of all trades in the futures market.
The Wall Street Reform Act includes tools to protect consumers from market swings, and allows the Commodity Futures Trading Commission (CFTC) to limit the influence of speculators. It allows strict limits on the number of speculators and dilutes their influence on the market. It is a common-sense, but very important, step toward reigning in gas prices before the summer travel season.
Not surprisingly, as the CFTC is moving forward to implement consumer-friendly changes, the CFTC itself is under attack by House Republicans determined to slow implementation of the Wall Street Reform Act. Their spending proposal -- which gutted funding for veterans, alternative energy research and students -- would slash CFTC's budget by one third and reduce its staff from 680 to below 440.
Those cuts would impact CFTC just when their oversight is needed most -- when it could do actual and immediate good for the American people.
Republicans in the House today are again shouting "Drill, Baby, Drill." But the fact remains: rising gas and oil prices are not a result of too little supply. They are a result of trepidation over the future of the Middle East -- a trepidation that is fanned by speculators who profit as middle-class Americans pay more at the pump.
Follow Rep. Joe Courtney on Twitter: www.twitter.com/connecticutjoe
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There should be a very high tax on speculation profits. Or maybe a small tax on each transaction.
Instead they pay some of the lowest tax rates in the U.S.
Makes no sense to me.
Tax the transactions.
Every transaction.
It doesn't matter if they make a profit.
We could collect enough to balance the budget and quit all the attacks on social programs.
http://moneytax.org
“At a time when gas prices are rising due to our dependence on foreign oil, this is the wrong choice at the wrong time. Ethanol – produced right here in America – is creating jobs that cannot be outsourced, strengthening our national security and improving our environment today,” the groups noted in the letter. “Just last December, Congress extended the tax incentive for ethanol use and provided the kind of stability, albeit brief, that investors and markets demand. Reneging on that stability just four months after voting to provide it is the kind of job-killing, innovation-stalling policy that will keep America addicted to foreign oil.”
The letter went on to suggest that Sen. Coburn, ostensibly interested in rolling back incentives, should take a look at the huge subsidies currently enjoyed by the oil, natural gas, coal and nuclear industries.
http://www.growthenergy.org/news-media-center/releases/american-energy-and-farm-groups-urge-senate-to-vote-no-on-job-killing-amendment-/
The main reason ethanol subsidies came into existence was an attempt to buy votes in various agriculture heavy swing states. It's continuation owes much to the recycling of some of the money into various PACs, some of which you mention. So congress basically hands out tax payers money to a special interest group expecting a cut as a pay back in the form of campaign dollars.
As shown here http://farm.ewg.org/ much of this money also goes to the richest mega farms whose owners already have high, multi hundred thousand dollar incomes.
Strangely the tea party and friends don't seem so keen on slashing this most wasteful bit of government spending, so much for their ideological purity. Note that I do wholly agree with the comment that subsidies to other form of energy production should also be removed.
Alcoholcanbeagas.com & read the book where David Blume breaks down the energy attained from Ethanol.
Congress & Senators have been trying to import Brazilian Ethanol for years without a Tariff to undercut US farmers. Is that what you want? More cheap competition that puts even more Americans out of work?
WHat, doesn't anyone realize this ?
there are only 3 things to do to make sure oil isn't used as a financial weapon.
1- Regulate the price ( something about competition and OPEC's monopoly just doesn't fit the American "ideals" of free markets, whatever that means anymore )
2- If you won't stop trading in it, see how palatable it is for hedge funds to actually take delivery of the goods before they can sell them again.
3 - Possibly the best thing is to take the commodity out of market traders hands.
I mean, yes, its draconian tough but , do you have a better system that guarantees your future. Don't forget, expensive oil means more oil exploration. Expensive oil means everything you buy will have this speculative tax applied to it thereby transferring your money out of your pocket into some traders pockets.
For the United States this is only a fraction of the true cost. When the Soviet Union collapsed we were faced with a dilemma, we had no enemy. Without an enemy there would be no justification for spending trillions of dollars on the military. Our ally in the Middle East, Saddam Hussein, had done our bidding by attacking Iran and was well rewarded for his efforts. The rationale for this is our quest to dominate the oil markets. When he turned his attention to an easier target, Kuwait, we gave him a nod and a wink by telling him "the United States has no opinion on Arab-Arab conflicts". We of course double crossed him and began our sortie' into the Middle East. All of the resulting animosity, 9/11 and the Bush Wars represent our efforts to funnel money into the MIC. This is now at a rate of about $1 trillion per year. If peace broke out this would be cut by 75%. If the spending for our oil related military ventures were applied to gasoline it would be about $5 per gallon in addition to the wholesale price.
Here in the US domestic supply will almost certainly only go down in the medium term. Despite the drill baby drill crowd other known domestic untapped sources are relatively small beer both in terms of possibly daily production and total available reserves.
In the medium to long term global oil will run out, whether we're at peak oil today or in ten years time. Increasing demand from emerging economies, in particular China, coupled with diminishing domestic and non OPEC supply, will cause higher and more volatile oil prices in the future whatever speculators do in the short term.
In it's own best interested the US should be looking to curb domestic demand, and not through idiotic money wasting, PAC enriching, programs like ethanol. What this means in the short term is raising the price of gas through taxation to drive down demand. But then no one wants to here that and politicians know it so its much easier to blame the speculators and keep on driving down the road to a real crisis.
It was the first promise he broken after he was elected, saying, "The prices have now dropped - We'll see about doing that if or when they rise again."
Oil hit over $80/barrel (the amount that, had Obama kept his promise, the windfall profits tax would have been triggered) months and months and months ago.
Meanwhile, we suffer.
Thanks Mr. Courtney!
If you choose to triple your electric bill then feel free to do it. We have plenty of energy and when the price rises naturally new methods will become cost effective.
In the 1940's we were told that the World have 50 years worth of oil left.....@ $3/ barrel that may have been true. We used to flare off natural gas because it was too cheap to do anything with it.
The Oil flowing into Cushing from the Canada tar sands were NOT viable when oil was cheap but now it is viable.
It is foolish to take corn and turn it into Ethanol which needs subsidies and causes the price of food to go up for people that can't afford food!