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Wednesday, May 4, 2011

Who’s To Blame For High Gas Prices?

Ryan Riemath fills his tank at a Shell gas station Tuesday, April 26, 2011, in the Seattle suburb of Bellevue, Wash. At $4.199 a gallon, the price is among the highest in the area. (AP)

Ryan Riemath fills his tank at a Shell gas station Tuesday, April 26, 2011, in the Seattle suburb of Bellevue, Wash. At $4.199 a gallon, the price is among the highest in the area. (AP)

Today the national average for regular unleaded gas is $3.98 a gallon. Just last month the price was $3.62. And last year at this time, it was just $2.90. The price of oil is at the highest level since 2008. So what’s causing the spike?

As lawmakers return to Congress from a two-week break, Republicans plan to roll out a series of laws aimed at making it easier to drill for new sources of domestic oil offshore. Democrats say the oil companies are swimming in profits and want to repeal billions of dollars in tax subsidies.

But Ed Wallace of Bloomberg Businessweek writes that speculators, looking to make a buck on commodities, and the Federal Reserve are to blame. Wallace says that speculators, like banks and investment houses, dumped hundreds of billions of dollars into oil futures, artificially inflating the price. And he says they have all that extra cash, because the Fed is loaning out money at historically low prices, and the most profitable thing to do is to buy up commodities like oil, silver and gold.


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  • Clara

    Of course its the speculators. This is old news.
    In the meanwhile the masses bitch and moan and they do what they do best-remain apathetic.

    • http://pulse.yahoo.com/_DPKS3HUGQBPILPIU7IVZSHGXLI Robert_N

      I think part of that is that they feel largely helpless. Many people are stuck with their guzzlers as they try to save money and pay down debt. So they made the mistake of buying the guzzler in the first place (assuming it wasn’t a real necessity), and taking the risk of unstable prices. Now they can try squeezing out every extra MPG and reducing miles driven, and that’s about it.

      Another problem is that many people are easily led around by their noses. They hear things like “drill baby drill” and pick politicians dedicated to maintaining the status quo, in a world that has hundreds of millions of people fixing to drive up resource demand. Even if there’s enough supply for now, there’s bound to be more volatility as the slack is taken up. And since the oil market is largely globalized, even more drilling and tar sand cooking in America would likely be a few drops in the future bucket, at more risk to the environment. At this point, momentarily cheap fossil fuels are not really in our best interest. They’re the only thing driving a plodding move toward improved efficiency. Until we have a fossil carbon pricing system funding a serious alternatives incentive program, that will probably remain so.

  • Jfandray

    Okay, so if the banks are hamstrung by policies if the Fed, how are they making the billions they are now?

  • John

    I’m a small business person but I also spend 1-3 hours per day making sophisticated investments including commodities. I have a background in economics and finance. Ed Wallace was saying what everyone I trust on this topic already knows and has known for a long time. It was great to hear on a national media program someone “telling the truth.” Anyone can add up the monthly oil contracts for delivery in the next month and compare it to how much oil the world uses on average. There’s a serious mismatch showing that LARGE investors (hedge funds, banks) are trading on paper far more oil than anyone needs.

  • PS Frog

    China has 1.3 billion people. India has 1.2 billion people. Both countries are industrializing and modernizing. That requires a massive amount of energy. Sure..in the short term it’s speculation driving the price of oil. In the long term, it’s the increasing demand and decreasing supply.

    • http://www.facebook.com/people/Michael-Scott-Schindler/651285870 Michael Scott Schindler

      It’s been in the long term for 2 years of growth now and we still have more supply than demand and OPEC lowering production to maintain prices. It is not untrue that there will be more demand. It is untrue that current prices are as affected by it as paper trading.

  • BHA in Vermont

    Speculators clearly have an effect on the price of gas.
    - Hurricane heading to the Gulf of Mexico? Jack up the price of oil because there MIGHT be a day or two interruption in the world oil supply.
    - BP spewing oil into the Gulf of Mexico? Jack up the price of oil because there MIGHT be less oil for sale in the future if new off shore drilling is delayed while better controls are put in place.
    - Civil war in Libya? Jack up the price of oil because there MIGHT be an interruption in the world oil supply. Libya produces only 2% of all the oil in the world, easily made up by other countries.

    ALWAYS a ‘MIGHT happen’, though it rarely does. But the price of oil is up for some period of time. affecting everyone downstream. When oil prices rise AFTER an event that actually DOES reduce the supply of oil, then the speculators can claim they are not responsible for the rise in prices.

    • Vippy

      How long did we have 99 cents gas? Nothing affected it then, no hurricane, no wars, etc. Let us keep our eyes on the speculators and our bought politicians who did not remove the Gramm-Bliley Act when Obama signed the financial reform bill. Yep, why did Obama not address this issue when he had a chance but go ahead and vote for him again!

      • http://www.facebook.com/people/Michael-Scott-Schindler/651285870 Michael Scott Schindler

        You do know the alternative to voting for him? Voting for Free market. Which translates into free for people with money to take advantage of people without money.

  • http://www.warrencriswell.com Warren Criswell

    This is all true. But it can throw us off the larger truth that oil is a finite resource and if we do nothing to convert to renewable energy a time will come soon when it will be too late. Ed is better at economics than at geology and climatology. Short term solutions blind us to long term consequences.

    • VPerry24

      Read the expert’s magazine “Oiledge” and find out that the peak oil is not reached until ca. 2018, when we will use 100 million barrels per day. So far they claim to have only used about 20 to 30% of the oil in the ground. Think back, how many times we were told that we have peak oil just so they could drive up the price but this is not the case now. Now it is a blatant disregard of demand and supply, which is manipulated by the big banks. Exxon already is way ahead of the game and sold off its Northsea and Gulf oil rigs and bought up the natural gas, which will be our future for a while.

      • http://www.warrencriswell.com Warren Criswell

        Vippy, 2018 is only7 years away. It’s not the percentage of oil in the ground that we’ve used, it’s the energy it takes to get it out vs. the energy generated by it. Production is going up but so is cost. When the profit margin shrinks to a certain level the shit hits the fan. The same is true of coal and natural gas. With increased production the dangers outweigh the benefits. Fracking for gas is not only expensive, it poisons aquifers and can cause earthquakes (as it has here in Arkansas). And burning all of them puts more CO2 in the atmosphere, eventually melting the ice caps, etc., all of which will eventually make this planet incapable of supporting the global industrial civilization we now take for granted. But instead of preparing for this we spend our money instead on the military protecting our access to the oil in the Middle East, while the oil companies make sure that renewable energy projects remain mostly just talk. Meanwhile, world population continues to rise exponentially, which means more energy demand and higher prices. Of course the big banks and the futures pirates are going to milk it for all its worth, what else is new? My point was that that deflects us from the larger dangers.

  • voice999

    I just caught the end of the program when Ed Wallace said he was lucky enough to be an investor, etc. Sorry, but I wonder whatever happened to letting investors lose their shirts and bad managers lose their jobs when bad management makes huge mistakes that (should) bankrupt the company? Seems like good old capitalism is taking a hit when there are no consequences to management and investors, and the middle class has to pay the bills through higher gas prices, bank fees, whatever. The rich get richer, the rest of us are worse off through no fault of our own. Won’t someone do a story on this?

    • Michael Klein

      There is a story on this: Senator Bernie Sanders eight hour speech, now available in paperback.

      • http://www.facebook.com/people/Michael-Scott-Schindler/651285870 Michael Scott Schindler

        I would elect Bernie Sanders President.

  • voice999

    I just caught the end of the program when Ed Wallace said he was lucky enough to be an investor, etc. Sorry, but I wonder whatever happened to letting investors lose their shirts and bad managers lose their jobs when bad management makes huge mistakes that (should) bankrupt the company? Seems like good old capitalism is taking a hit when there are no consequences to management and investors, and the middle class has to pay the bills through higher gas prices, bank fees, whatever. The rich get richer, the rest of us are worse off through no fault of our own. Won’t someone do a story on this?

  • http://www.facebook.com/profile.php?id=1678307045 Mark Sawyer

    I have always wondered how the pricing of gas at the pumps locally can not be a violation of anti-trust laws. Just picture other businesses doing this and what would happen. The price of cotton goes up today and every t-shirt in town jumps in price exactly the same..

  • http://www.lucidrealty.com Lucid Realty

    Just heard this interview and it’s utter nonsense. It is IMPOSSIBLE for speculators to drive up the price of oil without taking delivery. I explain it all here: http://www.chicagonow.com/blogs/chicago-real-estate-getting-real/2011/04/dumb-politicians-and-the-oil-speculator-myth.html

    In fact, the guy they interviewed gave a clue as to what’s really happening…the Saudis cut back production.

    • rpp

      Read your blogpost and, while you insist that supply and demand is the only force at work in the rising price of oil, you fail to explain how the current demand for oil is only a tick above what it’s been for the last 24 months and inventories are at historic highs, yet the cost has risen over 20 percent (over 140 percent for West Texas crude). That is completely counter to your simplistic premise.

      • http://www.lucidrealty.com Lucid Realty

        Show me the data for global demand and inventory and I’ll explain it. I believe it’s actually quite difficult to get that data and prove your point.

        If you believe that speculation in the futures market causes an increase in spot prices then you have to explain the mechanism by which that happens. It’s just not possible.

      • Mojavelyn

        So Right RPP!!!

    • Jack

      I always wondered the true meaning of clueless, you sir are so beyond clueless I wonder how you even dress yourself each morning.

    • Srb_54

      You really should stop drinkin’ and doin’ acid.You might one day need the two remaining brain cells you have left.

    • http://www.facebook.com/people/Michael-Scott-Schindler/651285870 Michael Scott Schindler

      We have X oil. We use X-1. Price goes up. Your math fails.

      Banks aren’t loaning money because it is waste to give out 4-11% loans when you can make 50% on commodities trading with free loans from fed.

  • Hudson Gal

    So happy to hear someone speaking the truth. Keep it up Mr. Wallace

  • Vippy

    We could fight a bit but as usual we just moan and groan and then speed down the highway at 85 mph which drives up the price of a gallon of gas to $ 5.11 per gallon. How stupid is that. Drive 60 mph and save 20%. And then let the oil companies swim in their inventories, but no, people have no sense at all.

  • Bill

    I am amazed at the way so called journalists gloss over this problem. Ed at least does his homework and his math. I highly recommend looking up his past pieces in the Ft. Worth Star Telegram or Business week. He has a website called Inside Automotive.

    It would make great reading for Niel Cavuto and everyone at CNBC.

    • Sotiredofitall

      Too painfully true – The “journalists” on TV are content to simply nod thier head at whatever brilliance is provide by the guest expert. Too affaid to ask the hard questions because the expert celebrity guest may not appear again and telll thier friends to no appear. And you know that would hurt ratings. Seems only Jon Stewart has any balls.

  • Anonymous

    banks and speculators driving the oil price is plausible…what will happen when the global supply really runs out?? we had better start putting in more bike lanes …

    • http://www.facebook.com/people/Michael-Scott-Schindler/651285870 Michael Scott Schindler

      Peak oil is a reality. We are burying our heads in the sand and praying. Feel free to join us. Planning is so overrated.

  • http://www.facebook.com/profile.php?id=100001460540498 David Berry

    I listen to Inside Automotive every Saturday.
    Ed is the most informative voice on the air on automobiles, current events and history. He was on the air right after 9-11–it was the best. I only hope there will be a CD available sometime. His program is on the web and on an App. I strongly recommend it to anyone who wants to hear the truth that is backed up with research.

  • Bj3241971

    Ed is on the money keep Ed on the show every week he speaks the truth.

  • RN

    Two years ago, Ed Wallace proposed the solution to this whole mess — namely, require that anybody who buys a futures contract have to take delivery on the commodity. The paper profit folks have no place to put that stuff, so they’d be out of the commodities market, leaving those who actually use those commodities to determine their prices.

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