Why has the price of gas jumped 18 cents a gallon?
Filed under: Energy, Goldman Sachs
Why are gasoline prices going up so much? I suppose I should be happy I am paying only $2.69 a gallon for mid-grade, instead of the $4.10 I paid in 2008. But it seems like the economy is not booming and oil supply exceeds demand, which would suggest oil prices -- and hence gasoline prices -- should be dropping. But they're not. And the reason is the same as last year -- speculators.
How much are gasoline prices up? CNN reports they popped 18 cents in the last two weeks. Self-serve regular was $2.655 as of October 23 -- up 17.82 cents since the last Lundberg Survey on October 9. Naturally, there are wide variations in price around the country -- CNN notes that the price is $2.67 in the Midwest; $2.62 on the East Coast; $2.52 for the Gulf Coast; $2.51 in the Rockies. Anchorage, Alaska, at $3.25 per gallon, has the highest price and Tucson, Arizona, the lowest at $2.24.
The fundamentals of supply and demand suggest that oil prices should be falling. On the exploration front, BusinessWeek reports that exploration is down 27.8 percent from 2008 with 309 rigs actively drilling, compared with 428 last year. Overseas there are eight percent fewer rigs drilling than there were in 2008 -- 764, down from 831.
BusinessWeek also reveals that crude inventories are bulging. U.S. crude inventories, at 339 million barrels, are up 27.7 from last year and at 725 million barrels, the strategic petroleum reserve stands at a 27-year record. There is no where to store the crude on land, so 125 million barrels' worth is sitting on tankers -- normally that amount is close to zero.
But despite supply exceeding demand, oil prices are rising -- up 152 percent since the $32 a barrel it traded at in January to $80.50 on Friday, reports BusinessWeek.
So why are oil and gasoline prices rising? Speculators. As I posted last year, 81 percent of oil trading volume is handled by Wall Street speculators -- like Goldman Sachs Group (GS), which will pay $23 billion in bonuses after its near-death experience 13 months ago.
Speculators borrow money to sell the dollar short and buy futures in commodities such as oil. Since oil is traded in dollars, the first bet almost ensures that the second bet will win. Fundamentals of supply and demand are overwhelmed by the role of the speculators.
So 175,000 Wall Streeters keep getting a return on their $5 billion investment in Washington lobbying fees and campaign contributions over the last decade.
The other 99.943 percent of Americans in a deep recession are out of luck when it comes to saving money on gasoline.
Peter Cohan is a management consultant, Babson professor and author of nine books, including Capital Rising (due in June 2010). Follow him on Twitter. He has no financial interest in the securities mentioned.
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Reader Comments (Page 1 of 21)
10-26-2009 @ 11:40AM
wdwrkr28 said...
If the speculators keep it up, they will keep us in a recession for years. Obama should focus more on regulating the oil speculators than healthcare. These speculators are criminals
Reply
10-26-2009 @ 1:08PM
calico817 said...
Anybody with half a brain has to agree with you. I guess that counts out everyone in Washington.
10-26-2009 @ 2:44PM
jeff wecker said...
speculators are filthy scum,and should be severely punished
10-26-2009 @ 3:17PM
King David said...
Bullsh*t!!!!! This is just another attempt to gouge the public by the owners of the oil companies. This time they are having their "SPIN TEAMS" try to make us believe that some PHANTOM GROUP is the bad guys -- ooooohhh, "it's the speculators". Since we can not see them, like we can focus on the oil companies directly, the SPIN TEAMS can get away with this bullsh*t!! Soon this raping of the public will force a shift towards a belief that NATIONALIZATION is the answer. Maybe it is...!??!
10-26-2009 @ 3:34PM
geald kauffman said...
The fact is our government doesn't have the balls to do anything about the speculators.
10-26-2009 @ 3:52PM
C.A. Miller said...
Everyone should know better than this. Everytime gas prices climb, they give some pansy excuse. THANKSGIVING IS AROUND THE CORNER AND BY THEN IT WILL PROBABLY BE $3.00 OR HIGHER. THEY KNOW ALOT OF PEOPLE TRAVEL HOME FOR THE HOLIDAYS!!!!!THIS IS THE ONLY REASON.
10-26-2009 @ 4:18PM
sarah said...
I agree, he needs to fix what is wrong with this country and forget about "fighting" with Fox News also. Come on OBama prove me wrong!! I didn't vote for you in 08 and won't in 2012, but prove me wrong by fixing the-ever escalating gas prices, health insurance, the ever increasing cost for food up 65% in two years, and medical care!!! Come on prove me wrong! You won't cause you can't fix it as you said you would!!
10-26-2009 @ 4:45PM
Tinman0670 said...
And as criminals they all should be hanged
10-26-2009 @ 5:01PM
USAcitizen said...
Wall Street - global gambling at its best ! Some win; many lose. The rich win; the masses lose.
10-26-2009 @ 5:45PM
jerrya said...
After the speculators ran the price of oil up last year, obama told the people washington would regulate them so it wouldn't happen again.. it was just another lie coming out of washington. It hasn'tbeen a government of the people for at least 40 years. jerrya
10-26-2009 @ 5:28PM
RICH said...
NOW AIG IS USING OUR TAX MONEY TO INVEST IN OIL FUTURES ,RAISING THE PRICE OF OIL AT OUR EXPENSE .WEVE BEEN DOUBLE DOOPED
10-26-2009 @ 6:26PM
Bill said...
What can we do as citizens to influence this??
10-26-2009 @ 6:55PM
Jim said...
Presidnet Obama needs to jump on these crooks who are specualting and ruining the US economy. Ehy is this not an issue on the fornt page of every newspaper?
10-26-2009 @ 10:07PM
dnewmarkmay said...
And the insurance companies and pharmaceutical companies aren't?
10-26-2009 @ 10:25PM
Kathleen said...
How Very True.
10-27-2009 @ 11:16AM
Steve said...
Oil speculator dont move the market jack ass! they ride the market and capitalize on both sides.. Idiots like you have no knowledge on anything but a big stupid ignorant interpretation on the market! so keep your mouth shut and go learn something..
10-26-2009 @ 11:41AM
Ron said...
This market is RIGGED! Since the Enron Days, the market has been deregulated which has attracted speculation thru giants like Goldman Sachs & Morgan Stanley.
Watch the 60 Minute Segment on YOUTUBE - called "The Price of Oil." It is a real eye opener! Shame on the greed from these companies and the lack of control by our own government to stop this corruption!
Reply
10-26-2009 @ 2:05PM
Johnson said...
Lack of control to stop the corruption? Hell, half if not 3/4 of the legislators are in the back pocket of big oil and speculators by way of the lobbyists! Stop the corruption! They are part of the corruption!
10-26-2009 @ 2:25PM
John said...
Golenman Sachs and Morgan Stanley received billion of tax dollar bail outs. Now they are using the bail out money to buy oil with.
They are doing the same thing they did before and making millions.
The economeny will not recover with high oil prices.
10-26-2009 @ 11:42AM
JD said...
I suppose we will never learn. When will the words "supply and demand" stop being used in ANY conversation regarding oil prices. That is not true now and hasn't been the case for decades. Are we still that naive?? Oil prices are manipulated 100% of the time. Here's where supply and demand fits in - The oil barons own the SUPPLY -- so they can DEMAND any price they choose! Want to regulate an industry that steals money every minute of every day? Want to ease the recession? Want to stop sending billions to terriorist nations? Either regulate what theseroil theives are doing, or find the alternatives and get off oil for good. It's been going on for decades - Are we really THIS stupid?
Reply