Pain at the Pump? Thank Wall Street!
In recent weeks, gas prices have been increasing seemingly overnight. Every night. One of the drivers appears to be Wall St speculation:
While there are several causes that contribute to rise in oil prices, many experts point to Wall Street speculation: hedge funds, investors, and big banks trying to make money by betting on the price fluctuation of oil and other commodities.
I went to a town hall meeting (a quaint NH tradition) held by Congressman Charlie Bass the other night. I live in the northernmost county of NH, which has an official unemployment rate of 14%, compared to the 5% rate in the rest of the state. Someone asked him about the increasing gas prices, and he blamed it on “unrest in the Middle East.”
While many blame high oil prices on the crisis in Libya, the country accounts for only 2 percent of the world’s output. More importantly, Saudi Arabia has vowed to make up for any shortfall in global supply by increasing its own production. So supply issues are not likely having a significant impact on prices.
Hmm. It seems Congressman Bass was mistaken.
Meanwhile, a commissioner of the Commodity Futures Trading Commission (CFTC) — the government agency charged with policing commodity speculation — said earlier this month that speculation on energy futures, including oil, is at an all-time high, jumping 64 percent even since 2008. Speculation was blamed by both Republicans and Democrats three years ago for oil prices, and even with conservatives’ tea party embrace of Wall Street today, several Republican congressmen, and conservative leaders have acknowledged that speculation is a driver of oil prices.
Great. We bail them out, and they return the favor by sticking it to us, once again. Thanks Wall St!
Recognizing the problem of oil speculation, Congress gave the government new powers to protect consumers and help ensure market stability with the Dodd-Frank Wall Street reform law passed last year. The law gives the CFTC the ability to limit “excessive speculation” by limiting the bets speculators can make. The law expanded the CFTC’s authority to regulate the entire market for the first time. While futures — bets on the future prices of commodities like oil and wheat — were regulated before the law passed, traders could choose to instead purchase “look-alike” futures that were not subject to regulation. Dodd-Frank changes this by allowing the CFTC to “impose a uniform set of rules across exchanges and the over-the-counter market, replacing a patchwork of inconsistent restrictions for different venues and commodities.” Curbing regulation could help make these markets more stable and transparent, and help bring down the cost of oil.
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