Economic forecasters keep saying that the tax bill negotiated between President Obama and Republicans will yield higher growth and more stimulus to the economy. But there’s an obstacle in the road on this, and it’s in the form of higher gas prices.
Despite weak demand in the U.S. and Europe, oil prices climbed this week to near $90 a barrel and gasoline prices have passed $3 a gallon on the West Coast and parts of the Northeast.
Why? If demand is down and supplies are plentiful — and they are — why would prices be going up?
Because Wall Street speculators are driving up oil and gasoline prices again — just in time to dampen holiday cheer.
“It’s all about investor optimism, and that’s been the story about 2010 … that’s the primary reason why we’re seeing oil prices at $90 (a barrel) and gasoline making an uncharacteristic climb in December towards $3 a gallon,” said Troy Green, a national spokesman for the AAA Motor Club, which monitors gasoline prices.
This is part of a trap that we actually saw right before the recession. Oil prices will be run up as the economy grows worldwide, raising volatile energy prices like for gas. But you cannot just live with a stunted economy in the hopes of keeping oil prices at bay. Nevertheless, one of the concerns with a stimulative program like this is that the money will go right into the pockets of oil companies.
Part of this is that we have to convert our energy system away from oil, because dwindling supplies are making the price unsustainable. But the other part of this is that oil refiners are seemingly helping out Wall Street speculators to run up the price by running at low ultilization rates:
Another explanation for falling inventories, one that belies the justification for higher prices, is that refiners who convert oil into gasoline are operating at extremely low utilization rates. They were operating at 86 percent of their capacity on average during the first nine months of the year.
That’s higher than last year’s average of 82.9 percent but well below the late 1990s and a period from 2000 to 2006, when refiners operated at well over 90 percent of their installed capacity to make gasoline.
Lower production runs create tightened supplies, which in turn drives up prices and sets the table for speculators.
Quantitative easing might also have something to do with this, because investors are hedging by locking in prices before they go up, increasing demand.
Oil is a bubble. We aren’t producing are refining enough oil to keep up with demand. Whatever little increase in worker paychecks could get siphoned at the gas pump.



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Matt Taibbi in his latest book describes how Wall Street set up derivative markets to allow speculation on oil prices. The problem is that they ratchet prices up but not down. This produces a bubble in oil and other scarce commodity prices, just as occurred in 2008, until it bursts and collapses, then it starts again.
We’ve been in a two year gradual run up, all pushed by this mechanism. Ther are no credible changes in supply or demand fundamentals that can otherwise account for oil at $90/ bbl. And most of world demand remains slow due to the recessions. This is pure Wall Strret speculation, managed by the likes of Goldman Sachs.
This is one example of how the general population cannot get control, because it has zero pricing power against these manipulated forces.
From my view in the cheap seats, I can’t imagine this is the only commodity affected by this sort of speculation. Wouldn’t artificially high prices like these not only perpetuate this economic climate, but accelerate a worsening of the situation?