Blogs » Politcs Plus » Gasoline prices are still too high

Subscribe


Image

If you're like me, you probably think that the price of gasoline doesn't have to be as high as it is, but it's hard to pinpoint the reason. I'm convinced that global and U.S. supplies are plentiful and stable, so it's not the conventional “supply and demand" answer. I'm also unconvinced that the Middle East turmoil is the cause. I don't have any evidence that the oil companies are joining forces to keep the prices artificially high. Last quarter Chevron Exxon Mobil and Shell earned about $25 billion in profits, so they're not struggling, but you would think that, because the republicans refuse to cut their subsidies fearing the oil companies will raise their prices. That only leaves Wall Street speculators to blame. Once again, and firms like Goldman Sachs and JP Morgan Chase are reaping benefits at our expense…Yea,I know a couple of weeks ago, I said it wasn't the speculators but as always, things change as new information surfaces.

About 70% of contracts for future oil deliveries are now bought by financial speculators who put up very little margin (about 7-10% according to Mad Money Kramer), so the obvious answer is to raise the margin rate to about 30%. That way you would have fewer speculators but don't bank on it In 1991 Goldman Sachs and JP Morgan Chase won exemptions on the amount of limits they could speculate in the futures market. They became classified as commercial traders, as if they were an airline, hedging price risk in jet fuel. We do need some speculators to drive the market, but not so many working with small margins to drive up the price. Prior to 1990s, the ratio speculative trade to trades made by commercial users of oil leaned heavily to the users of crude. Now it's made up mostly of hedge fund managers. Senator Maria Cantwell said" the sheer volume of new capital coming from hedge funds, financial traders in other long-term passive investors- interest that mostly buys oil futures to turn a quick profit- is creating an artificial demand and driving up the price for consumers.

This all started in president Reagan's tenth year; as the banks wanted to invest in future contracts to hedge bets they made in the unregulated swaps' market. Republicans were happy to reduce regulations on the markets. Since that time, oil swaps increased from $13 billion in the 90s to $313 billion as of July of 2008, at oil's peak price. Several administrations have failed the regulate the speculative market; Democrat and Republican.

Instead of trying to gut funding for the Commodity Futures Trading Commission (CFTC), we should use this agency to police the speculators. Regulating the speculators will bring down food prices and create jobs. Since we don't have an energy policy, we will continue to be held hostage to fossil fuels, speculators, and petrol dictators, so our only option for now is to regulate the speculators. After all,that's what good governance is all about. It would really be sad if in the year 2070, if our country still didn't have an energy policy and had to suffer with the same complaints.

If you unconvinced of the criminal like behavior of Wall Street, watch the rerun of a very good HBO special called "Too Big to Fail." The movie is based Andrew Ross Sorkin's great book “Too Big to Fail."

By Kevin G. Hall and Robert A. Rankin | McClatchy Newspapers

Read more: http://www.mcclatchydc.com/2011/05/13/114190/speculation-explains-more-about.html#ixzz1NCQI5gWi