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Good News for Obama at the Pump

A Washington Post-Pew Research Center poll indicates that only 1 in 8 Americans blame gas prices on "political or policy-related" factors. Most blame a nexus of "greed, speculation and oil companies." Factually, this is somewhat inverse to the true nature of things - private speculation is a phantom with negligible effect on oil prices and greedy oil-companies are a straw man which Obama hopes to publically vilify as a means of extracting ever increasing tax revenue (and thereby aid "green" energy). These rhetorical villains are conveniently evoked to corral people into cheering the very source of their economic pain: government intrusion in the market.

Obama is thus enjoying great fortune. He will own gas prices at the election, but not so dearly if external factors are seen to share the blame. Republican candidates would do well to educate the public on the facts of oil prices as well as the inevitable effects of Obama's policies toward oil producers between now and next November.

Categories > Economy

Discussions - 12 Comments

And the narrative will continue. Gas has to get to about $5/gallon across the nation before the media cover about "speculators" and "greedy oil companies" won't matter, and Obama will get pressure to "do something."

But until then, the media will continue the drum beat.

And Republican candidates can speak facts all they want. It will not matter.

Such is the continuing power of the media and its ability to shape the narrative. Which is why they have abandoned all pretense of objectivity. Why bother? They retain their power and can live more comfortably in their skins.

Perhaps you would care enlighten us? Gas prices sure as hell aren't following supply and demand, so who IS to blame? Please don't blame it on supply -- we have $4 a gallon gas at a time when our storage is at capacity and there is no REAL threat to the bulk of the world's supply (Libya is negligible). And don't blame it on demand -- that is actually decreasing as the price increases.

I think it is speculation -- rules that used to apply to commodity markets should be reinstated to stop this nonsense. Lots of people are getting rich at the expense of the rank-and-file American.

The decline in demand is having an effect--gas prices around here have dropped by nearly 20 cents per gallon in the last couple of days. The problem is less one of supply than it is of refining capacity--there hasn't been a new refinery built in this country since 1978. Also, surely the Fed's "quantitative easing" has something to do with the recent surge.

Other than news reports about supposed "speculation," what evidence do you have to believe it is speculators?

What specific "rules that used to apply to commodity markets" no longer apply.

And would re-instatement of those rules apply throughout the world or just in the United States? And if in the U.S. only, what effect would that have on worldwide speculation?

The evidence is before your eyes, Don. When gasoline jumps 20 cents overnight, supply and demand can't be the cause. When the experts are asked, they say "Middle East strife," or "hurricane session," or whatever the cause du jour happens to be, which is an admission that prognostication (i.e., speculation) is the driving force behind fuel prices these days. It's casino capitalism, pure and simple, and the commodity markets have been operating like this for the last several years. It's another bubble as investors/fund operators dip in and out of the market to make quick bucks. Guess who pays for their profits?

I'm not denying there are other factors, like printing too much money and refinery shortages, but the major cause for volatility is speculation, and that's something that could be fixed.

I'm all for giving the "market" the benefit of the doubt, but once the evidence is in, you have to go with facts rather than ideology.

That oil futures are traded is not at issue. They are.

But I'm still not convinced that's the reason, simply because you assert the "evidence" is "before my eyes."

But to my other question -- let's say the rule of speculation are tightened, as you suggest. Does that stop the speculators in markets where U.S. rule does not extend?

And of course it's tempting to ask: if speculators in 2011, then clearly speculators in 2008. Yet we saw not stories of speculators then; no hand-wringing. What's the difference? Are speculators a new phenomenon?

Tulips, anyone?

Do you want co-counsel? Because there were definately stories out in 2008, even if you stick to NLT you can awaken the Hayward v. Deenen debate, and there is this senate report in 2006, I have tabbed, and something called the OTC derivatives market which is unregulated and back up to around 11 Trillion, something called the Enron+London Loopholes... but I happen not to deny the existance of administrative agencies, and I understand that the price drop seems to also coincide with the 30 day extension on a key rule that the CTFC put into notice and comment and has seemed to turn against the Oil speculators, and OTC derivatives as part of Dodd-Frank act. That is there is a potential reason to drop prices in order to influence the decisions of the commisioners.

Did I just see gas fall from $4.19 to $3.90 in 2 days? Why? Demand? Supply? No, what caused it where announcements that the price could not be sustained given supply -- and fewer people want gas at that high price (demand has been falling in the U.S.). What happens is speculators (seizing on some excuse/fear) bid up the price of futures and wait to see if it will stick, and it often does for weeks on end. In the meantime, billions of dollars are transferred from work-a-day Americans to large institutional investors. And we wonder why our economy has been so very fragile this last decade. Shameful, and preventable. And hundreds of experts are saying this, not just me.

I've heard some argue that sure, we could fix the commodity markets in the U.S., but the world wouldn't cooperate. What rot! While we have the raw consumer power let's use it. The world will follow our lead (yes, even China and India). I for one am damned tired of paying anything more than what gasoline is really worth, which is about $2.70 a gallon (that's about what the price falls to when the speculators think oil is a poor investment).

For crying out loud, are you demanding price controls on gasoline? What you seem to be saying is that you are sick of capitalism and someone ought to get a grip on it.

Who?

If you are that upset about paying for gasoline, then do not buy it until the price goes back down to what you are willing to pay. I do not see that the market will meet your demand any time soon.

Ok, Kate, not one of your more intelligent posts. Oil is a commodity, which means people have a very hard time holding out for a reasonable price. I could use slightly less of it, but I can no more refuse to buy it that I could refuse water or electricity (both of which are highly regulated).

Second, the only people who believe in laissez faire capitalism are crazed anarcho-libertarians. Capitalism absolutely must have government for such things as money, contract law, and security. It is not anti-capitalist to advocate certain kinds of regulation (the difference between conservatives and liberals here is in whether these regulations are meant to help the market function better or control it for political purposes). The futures market in crude oil has only been around since the 1980s, and the regulation of same was severely weakened in the late 1990s and early 2000s. And look at the mess these gamblers have made of it!

So, is it "socialist" to want to limit a futures market? Not at all. The essence of capitalism is the rule of supply and demand, and limiting futures restores that rule. Or, we can bury our heads in the sand and let these juggernaut futures markets destroy our economy.

My last bit was sarcasm and you explained the point if the irony nicely.

Current oil prices and speculation in the futures market are both a response to unrest in the Middle East. Your gamblers also take into account limited refinery capacity and what the Fed has done to the value of the dollar. We can do nothing much about unrest in the ME and how that affects supply. I suppose asking government to "limit" the futures market would have an effect of prices, but not as much as you think it would. You are complaining there that people who make money on risk are inherently evil. Yes, it makes you sound like a socialist to me. They say the same thing.

Our government is responsible for the lack of refinery capacity and that is regulation. The Fed's regulation of our money supply with quantitative easing and purposeful inflation of our currency means it takes more dollars to buy oil and ratchets up the price along that oil's journey to your gas tank. If our dollar has less value we more of them to buy anything. This is part of the futures "gamble" although it was a sure bet and had been a predictable part of the conversation since Bernanke announced his plan to manage the fact that no one wants to buy our debt after Obama's economic "stimulus" made us even more clearly the wastrel nation that we are.

It is a mess and I find it distressing to hear conservatives demand government "Do something!" when they get pinched by life's messes. Of course we need government. But it is not the answer to every problem. part of the reason that it is so big is that conservatives want it to fix one set of problems while liberals want it to fix another set and everyone in between grabs what he can get because it is the only way to survive in the mêlée.

I'm not denying that there are other factors (e.g., the completely irresponsible printing of money and subsequent deflation of our currency). Nonetheless, the futures market accounts for most of the volatility in gasoline prices, and anyone who doubts that has only to look at the quick pace of increases. In science variable X must correlate to variable Y to claim a causal connection. Demand, supply, refining capacity, and even deflation move far too slowly to explain these massive oscillations in price, whereas trading explains it pretty well.

We used to limit these futures contracts, but Enron and some other lobbyists got that changed back in the very early 2000s. I don't think government is the answer for all (or even most) of life's problems, but it is the partial answer for THIS problem.

Also, I think it is important to realize that laissez-faire is a "natural system." Yes, there is rough justice in it, and yes, it will equilibrate over time. But just like nature, those modifications/fixes tend to be catastrophic for the individuals involved (e.g., die-backs). The real reason that laissez-faire systems are as rare as hen's teeth is because they are exceedingly stressful to live under. People are convinced they can do better than nature (even if that's not true). In short, libertarians and those who venerate the market need to understand that politics will always be a part of economics. People will always demand that "government do something."

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