Excerpt:
Gas prices at the pump are slowly creeping up wards. A barrel of crude oil traded at a price of $85.31 today, April 2, 2010. Yet the demand for gasoline in the U.S. has dropped in the past two years.
President Obama recently opened up approximately 500,000 square miles of previously protected off-shore areas to oil exploration and drilling, including areas off the coast of Florida, thereby increasing potential supply.
There are no new wars in the middle east, nor have there been any hurricanes in the gulf that would drive oil prices up. Refiners that turn crude into fuel are operating at well-blow capacity.
Surging trade figures in China and a weaker dollar can have an effect in offsetting lower demand and helping drive prices up, but that effect is minimal at worst.
Anyone who believes in free market capitalism and markets regulating themselves through supply and demand should also believe that today’s economic circumstances would be a recipe for lower gas prices. But it is not.
So, what’s driving the price up? The same players that brought the American people $4+ gasoline in 2008: Wall Street speculators.
A report published by the Oxford Institute for Energy Studies puts it this way:
The first layer [of oil price discovery] is based on price assessments produced by oil reporting agencies. These prices are derived from relatively illiquid physical markets which lack transparency and are dominated by a few players. The second layer is the futures market which is more transparent, highly liquid and characterized by a large number of players with diverse expectations. A key issue in need of further analysis is the nature of the relationship between these two layers of price discovery.
In other words, the actual market, determined by supply and demand and based on actual production of gasoline from crude has little to do with how much Americans pay at the pump. An oil contract’s price today has nothing to do with free market concepts. The people who buy and sell oil on their PC screens do…and chances are, you’re not one of them.
A June 2006 US Senate Permanent Subcommittee on Investigations report on “The Role of Market Speculation in rising oil and gas prices,” noted, “…there is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices.” The Senate committee staff documented in the report a gaping loophole in U.S. Government regulation of oil derivatives trading so huge an oil tanker could sail through it. That seems precisely what they have been doing in ramping oil prices through the roof in recent years.
The Senate report was ignored in the media and in the Congress.
So, what can be done now?
The CFTC is weighing a proposal to put global limits on how many oil contracts any one market player can buy or sell, and legislation to revamp financial regulation that’s expected to pass Congress this year could force greater disclosure by oil traders to regulators.
Any regulation of big business, however, is perceived by the corporate media and the people that believe anything they see on TV or read in the paper as socialism or fascism, or whatever the talking heads tell them to think. There may be tea parties against regulating speculators, while the people that attend them pay more at the pump to attend them.
For the rest of us in America, there will be no imminent relief at the gas pump. Thanks to Wall Street, plan on spending more at the gas pump this summer.
Read more here: http://www.examiner.com/examiner/x-38220-Orlando-Independent-Examiner~y2010m4d2-Why-is-price-of-gasoline-rising-while-demand-in-US-is-down