Gasoline pricesHas the U.S. economy suddenly improved so much that gasoline demand is pushing pump prices up again? They've jumped by a nickel in past two weeks alone.

At least part of the answer can be found in hedge funds that are placing bets on rising gasoline prices for two reasons. Strikers in France shut down refineries that ship gasoline to U.S. East Coast, and the proportion of corn-based ethanol the government will allow in gasoline is rising from 10% to 15%. With corn prices spiking, that's a recipe for you to pay more at the pump.

According to the Commodity Futures Trading Commission's weekly Commitments of Traders report, hedge fund betting on rising gasoline prices hit "57,640 futures and options contracts for the week ended Oct. 19, the highest level since May 7."

Why would this smart money take such a position? One reason could be the strikes in France, part of widespread protests that began last month against President Nicolas Sarkozy's decision to raise the age for retirement and pensions.

"Limited" Impact?

And according to Bloomberg, the strikes have caused "nine of 11 refineries to shut, while the remaining two run at reduced rates, disrupting shipments to foreign markets." The result of the stoppages is a 300,000 barrel-a-day reduction in gasoline production there. Between Sept. 17 and Oct. 15, supplies from Europe to the East Coast of the U.S. are down 13%, to "53.5 million barrels according to the Energy Department in Washington," reports Bloomberg.

But one analyst, Michael Lewis of Deutsche Bank, said in an Oct. 22 note that the U.S. has ample gasoline stockpiles, so the impact of the French strike will be "relatively limited." The U.S. Department of Energy reports that motor fuel inventories rose "0.5% to 219.3 million barrels in the week to Oct. 15."

The other reason that gasoline could be rising is a change in regulation that would allow more ethanol in gasoline, as I wrote last week on DailyFinance. With corn prices up 25% in the last two weeks on strong demand and a smaller-than-expected harvest, corn has now spiked 54% in the last year.

Of course, such a rapid rise in gasoline prices might cause people to drive less, which would boost supply even more. And if France can keep those strikers away from its refiners, gasoline prices will likely go back down fast. As far as I'm concerned, that can't happen soon enough.

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Automobile engine damage from 15% ethanol is well known. But the damage to lawn mowers, leaf blowers, chain saws, irrigation pumps etc. will be of monumental proportions.

October 27 2010 at 7:33 AM Report abuse +1 rate up rate down Reply

the people that started puting corn in gas are nuts it will destroy your motors and we will pay more to eat so were is it a help just drill for oil us part of that money to develop wind and solor slow and right not like they are dueing i have a battery pirus gets 45 mph but its small and cost 26 thousand dollars and what about the battery its around 6 or 7 ths due the math not good and the gm they say only last 3 or 4 years

October 27 2010 at 7:21 AM Report abuse +2 rate up rate down Reply

I'll tell whats driving gas prices, GREED. Greed and the fact that neither political party is willing to investigate this relatively recent phenomena. Republicans want the profits and Democrats want the taxpayer pain to drive alternative energy initiatives. So much for government of , by,and for the people.

October 27 2010 at 7:17 AM Report abuse +3 rate up rate down Reply

When gas and food prices get so high that the govt can no longer afford to take care of everyone, it will be should have never depended on this govt in the first place. People will start working again so they can buy their own food...............the way it is supposed to be. Unemployment will be solved.

October 27 2010 at 6:46 AM Report abuse +7 rate up rate down Reply

GAS?? What's with cotton, groceries, and anything else you have to buy, it's all Bull S++t, lower the price's and boost the economy, what do they do with all that food that does'nt sell in the grocery store's?????????? We can get around without gas, but it might be hard to do without food.

October 27 2010 at 6:30 AM Report abuse +2 rate up rate down Reply

The only reason gas prices are going up is: The greed of rich men. The rich in the Middle East, the USA and the rest of the world. No group of rich people having nothing to do with the owning of a fuel company, should be allowed to invest money into the purchasing of thousands of gallons of fuel. Then setting on this fuel supply until they can raise the price of this fuel to make a profit from it. This fuel should only be sold by the fuel companies and countries. This is not free enterprise or how the money markets should be allowed to work. If the trickle down of the money doesn't start very soon this country is going to get even worst. The rich need to be penalize for outsourcing work and jobs. The rich got tired of paying the USA worker what it took to live in the USA. So, all manufacturing got sent overseas for cheap labor. China is and for always will be our enemy. They don't like us, never will. China is never going to change just because the USA is giving them the ability to become richer. Manufacturing has to come back to the USA as fast as possible. The Hell on the screwed up World Market economy. The USA has to, again become the domineering manufacturer of all goods & services, once again.

October 27 2010 at 5:48 AM Report abuse +2 rate up rate down Reply

LOL!!!!!!!! We get gas from France??????? Oh brother!

October 27 2010 at 5:29 AM Report abuse +3 rate up rate down Reply

The government is allowing the fuel producers to increase the amount of ethanol in its gasoline from 10% to 15%. Its not a mandatory requirement. If corn prices are up 54% in the last year, wouldn't that be a disincentive to increase the amount of ethanol you added to your gasoline? And since our American refineries are not operating near capacity, and therefore not at optimum efficiency, wouldn't the strike be an opportunity for our refineries to to increase production, and efficiency, export or excess fuel to France and Europe, and thus reduce our per gallon costs? Its just like back in 2008 when speculators artificially raised the price of crude oil well above actual supply and demand pricing. Oh, one more thing. The more ethanol you add to your gasoline, the lower your mpg actually becomes since alcohol is not as potent a combustion source as gasoline. I know adding ethanol to gasoline is supposed to help lower our reliance of foreign produced oil, but if costs more, and provides less mpg, is it really worth it in the end? Yeah, yeah. Corn is a renewable fuel source. But its also a major grain source. The cost of corn doesn't just go up for the corn used in ethanol production, it also goes up for the corn used in your cereal. In reality, the government didn't raise the ethanol content in gasoline to cut our dependence on foreign produced crude oil, it raised it help the large corporate farming conglomerates who grow, and produce the vast majority of our corn crop (and more importantly to our congressmen, those conglomerates provide millions of dollars through lobbyists), to increase there profits. And now the speculators are increasing their profits.

October 27 2010 at 4:30 AM Report abuse +7 rate up rate down Reply

Americans will drive less because cars built before 2007 will find their car engine parts "eaten alive" by 15% ethonol.

October 27 2010 at 3:54 AM Report abuse +7 rate up rate down Reply
1 reply to stubit586's comment

what better way to force you to buy a new car at 25 to 50 thousand

October 27 2010 at 7:25 AM Report abuse +1 rate up rate down Reply

You know what would be really funny...a bus load of hedge fund betters going off a cliff. What would be twice as funny....a second bus load of hedge fund betters going off a cliff. What would be both ironic and funny at the same time...they just filled both buses up with gasoline.

October 27 2010 at 1:41 AM Report abuse +2 rate up rate down Reply