|By: David Dayen|
House Democratic Leader Nancy Pelosi went sharply after oil speculation late yesterday, taking up a strategy to answer Republicans on rising gas prices that has not been employed much in the political sphere. Take a look at Pelosi’s press release yesterday on the subject:
Independent reports confirm that speculators are driving up the cost of oil, hurting consumers and potentially damaging the economic recovery. Wall Street profiteering, not oil shortages, is the cause of the price spike. In fact, U.S. oil production is at its highest level since 2003, and millions of acres have been cleared for additional development.
We need to take strong action to protect consumers from this speculation. Unfortunately, Republicans have chosen to protect the interests of Wall Street speculators and oil companies instead of the interests of working Americans by obstructing the agencies with the responsibility of enforcing consumer protection laws. They have also repeatedly opposed our efforts to end billions of dollars in outdated taxpayer subsidies for oil companies enjoying record profits.
We support efforts by the Obama Administration to expand domestic energy resources, including natural gas and renewable sources like wind and solar that create jobs in America and will end our dangerous dependence on foreign energy supplies. This can be achieved because today, the United States currently has more oil and gas rigs at work than the rest of the world combined, and imports of foreign oil have decreased.
We call on the Republican leadership to act on behalf of American consumers and join our efforts to crack down on speculators who care more about their profits than the price at the pump even if these spikes harm the American consumer and our economy.
Gas prices have gone up about a quarter in Los Angeles in the last week. This will be the next terrain on which our politics are waged. And the facts are that domestic oil drilling has never been higher, and demand for gas in the US is at a 14-year low. So only global demand, geopolitical worries or speculation can be driving this. Global demand is certainly possible, though the entire European continent is in a recession and China is seeing slower growth, along with the low US demand. And the geopolitical situation definitely drives up prices at the moment, particularly because of Iran and the threat of a military strike, along with the oil embargo (something on which the major parties don’t really disagree).
But speculation is definitely a factor, as this McClatchy article shows.
While tension over Iran has ratcheted up over the last few months, the price of oil and gasoline has leaped far beyond conventional supply and demand variables. Financial speculators are piling into the market, torquing the Iranian fear factor into ever-higher prices.
“Speculation is now part of the DNA of oil prices. You cannot separate the two anymore. There is no demarcation,” said Fadel Gheit, a 30-year veteran of energy markets and an analyst at Oppenheimer & Co. “I still remain convinced oil prices are inflated.”
Consider that light, sweet crude trading on the NYMEX changed hands at $79.20 a barrel just four months ago, but soared past $106 a barrel Tuesday afternoon, partly on news that Iran would halt shipment of oil to Britain and France. But those countries already had stopped buying Iranian oil. And Didier Houssin, the International Energy Agency’s director for energy markets and security, said that “there are alternative supplies that can make up for any loss of Iranian exports,” The Wall Street Journal reported [...]
A McClatchy review of the latest Commitment of Traders report from the Commodity Futures Trading Commission, which regulates oil trading, shows that producers and merchants made up just 36 percent of all contracts traded in the week ending Feb. 14.
That same week, open interest, or the total outstanding oil contracts for next-month delivery of 1,000 barrels of oil (about 42,000 gallons), stood near an all-time high above 1.486 million. Speculators who’ll never take delivery of oil made up 64 percent of the market.
The analysts in the piece say oil should be trading around $75 a barrel, not $106. This is pretty serious, because high gas prices have proven time and again to slow the US economy, as we don’t have a flexible enough transportation infrastructure to absorb them. The energy analysts are all saying the same thing – Wall Street speculators must share the blame for this.
But if Pelosi really wants to fight this out, she has to do what the lonely few on the Democratic side – mostly Maria Cantwell and Bernie Sanders – have been doing. She has to demand that the CFTC set position limits on speculators. Their commodity speculation rule from October was comically weak, and that had clear consequences. Maybe you can hit Republicans for cutting the CFTC budget, but ultimately it’s an executive agency that can crack down on oil speculators.
That said, I really hope this speculation idea reaches the national consciousness for once. This has been going on for years. Matt Taibbi wrote about it brilliantly in 2008, when the speculation was just as bad if not worse. There’s a place for speculation and hedging but not the majority of the market. This desperately needs to be explained to the public, and having Nancy Pelosi take a role will go a long way to actually getting some information out.