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  • Gas Prices Rise, Time to Blame the Speculators

    The national gas price average is $2.51 for July 28, 2009, far less than the $3.96 it was one year ago to this date, but still high enough to make you groan as you wait for a seemingly-endless long time for that click of the pump, letting you know your tank is full. And, just like every other time gas prices increase to uncomfortable levels, people are passing the buck to oil speculators. From the Wall Street Journal:

    The Commodity Futures Trading Commission plans to issue a report next month suggesting speculators played a significant role in driving wild swings in oil prices — a reversal of an earlier CFTC position that augurs intensifying scrutiny on investors.

    In a contentious report last year, the main U.S. futures-market regulator pinned oil-price swings primarily on supply and demand. But that analysis was based on “deeply flawed data,” Bart Chilton, one of four CFTC commissioners, said in an interview Monday.

    The CFTC’s new review, due to be released in August, adds fuel to a growing debate over financial investors who bet on the direction of commodities prices by buying contracts tied to indexes. These speculators have invested hundreds of billions of dollars in contracts that were once dominated by producers and consumers who sought to hedge against oil-market volatility.

    The review also reflects shifting political winds. Under Chairman Gary Gensler, appointed by President Barack Obama, the CFTC is departing from the more hands-off approach it took under its previous head, a George W. Bush appointee. The agency is widely expected to adopt new rules to limit the amount of investments in commodities by big institutions betting on their direction purely for financial gain.”

    Are speculators really to blame? Heritage energy analyst Ben Lieberman asks,

    If speculators were capable of profiting by driving prices ever higher, why would they allow themselves to be caught holding the bag in a free fall? Clearly, the drop in prices is strong evidence that the market is not so easily manipulated. And it suggests that efforts to punish oil companies and investors—either through price controls, windfall profits taxes, or trading restrictions—are not really solutions. Instead, they are noisy diversions from what really needs to be done, such as expanding domestic oil supplies.”

    In a previous post, regulatory analyst James Gattuso points to a study released by the Federal Reserve that finds no correlation between speculation and the price of any commodity. And a third Heritage analyst, tax expert J.D. Foster chimes in, saying, “Speculators accept risk that somebody else doesn’t want. And speculators are rewarded for accepting risk if they prove right, and they lose money if they get it wrong.”

    George Mason economist Don Boudreaux, in response to a recent radio interview with Maryland law professor Michael Greenberger, writes on his blog:

    Mr. Greenberger repeatedly objected to persons investing in oil futures “passively” – as he said, “with no interest in actively controlling these assets, just hoping to make a buck when their prices rise.” Ummm…. Does Mr. Greenberger own stocks only in companies that he actively manages? If not, why is it okay for him passively (and speculatively!) to buy, say, a few dozen shares of Microsoft “hoping to make a buck when their prices rise” but not okay for other persons to speculate in oil for the very same reason?

    Second, Mr. Greenberger presumes that all speculators speculate long and that doing so is a sure thing. Neither presumption is valid. It’s just as easy to speculate short as it is to speculate long. And if speculation were as risklessly profitable as Mr. Greenberger presumes it to be, then high gasoline prices would pose no problem because everyone and their grandmothers would be raking in riches by speculating in oil markets.”

    If Congress passes cap and trade legislation, gas prices will return to $4-per-gallon, and then we will have something and someone to blame.

    Posted in Energy [slideshow_deploy]

    7 Responses to Gas Prices Rise, Time to Blame the Speculators

    1. Spiritof76 says:

      It seems that American education system has produced a bottomless pit of stupid educated officials, blinded by ideology and devoid of any common sense. If speculators could drive up the price willy-nilly how come they have been taking a break now? Must not be greedy enough!

    2. $5/gal gas, here we says:

      Everyone, fill up now while you can because record gas prices are coming and coming FAST!!! In fact, by the end of September, it will skyrocket to $5. I have been expecting this to happen since July of last year.

    3. Jim from Illinois says:

      Excellent article, and very much to the point. It's no surprise to me that Obama would want to scapegoat investors. During the election campaign, he asserted that investors "game the system" and should pay much higher taxes "out of fairness".

      Thanks in large part to his anti-investor rhetoric, the government took in almost zero tax revenue from investors last year. It looks like he hasn't learned from his mistake.

    4. Alex, Coral Springs says:

      I don't buy it much. You guys could sit there and swallow this but the bottom line is, speculators should get SOME of the blame.

      How do you guys justify demand being low and a huge spike in U.S. oil inventory? Yet the price of gas keeps going up? Just the other day they swelled up by 1.8 MILLION barrels. Seems that "someone" is swelling the gas prices at the pump as well. HMMMMM! There's something funny going on and I'll bet that speculators have something to do with it.

      Wake up people, don't be zombies for the right either. That's why I keep harping that we need a third party in this country. The democrats are dead with corruption and the republicans act like democrats when they get power.

      If it's not the speculators then who is it?

    5. mel heckman huntingt says:

      Send a copy of this to Bill O'Reilly at Fox News. He is absolutely certain the speculators have fixed the prices and hurt "the folks"

    6. Nicolas Loris Nick Loris says:

      Speculators do play an important role in setting the price of oil and other raw materials. But they do so based on their expectations of future trends in supply and demand, not on whims.

      So the speculators do affect prices, but the effect is marginal, at best.

    7. roy-salem,va. says:

      playing the stock market is different than playing the necessary prime movers of our needs. speculaters in oil and fuel should be above the greedy of our country. outlaw this. we need food and fuel stability to allow us to suceed.

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