By Paul Driessen
When President Obama took office, regular gasoline cost $1.85 a
gallon. Now it’s hit $4.00 per gallon in many cities, and some analysts
predict it could reach $5.00 or more this summer. Filling your tank
could soon slam you for $75-$90.
Winter was warm. Our economy remains weak. People are driving less,
in cars that get better mileage, even with mandatory 10 percent
low-mileage ethanol. Gasoline is plentiful.
Misinformed politicians and pundits say prices should be falling. Our
pain at the pump is due to greedy speculators, they claim, and
greedier oil companies that are exporting oil and refined products.
Their explanation is superficially plausible — but wrong.
Energy Information Administration (EIA) data show that 76 percent of
what we pay for gasoline is determined by world crude oil prices; 12
percent is federal and state taxes; 6 percent is refining; and 6 percent
is marketing and distribution. The price that refiners pay for crude
is set by global markets.
World prices are driven by supply and demand, and unstable global
politics. That means today’s prices are significantly affected by
expectations and fears about tomorrow.
A major factor is Asia’s growing appetite for oil — coupled with
America’s refusal to produce more of its own petroleum. Prices are also
whipsawed by uncertainty over potential supply disruptions, due to
drilling accidents and warfare in Nigeria; disputes over Syria, Yemen
and Israeli-Palestinian territories; erroneous reports of a pipeline
explosion in Saudi Arabia; concern about attacks on Middle East oil
pipelines and processing centers; and new Western sanctions on Iran over
its nuclear program and the mullahs’ threats to close the Straits of
Moreover, oil is priced in U.S. dollars, and the Federal Reserve’s
easy money, low interest policies – combined with massive U.S.
indebtedness — have weakened the dollar’s value. It now costs refineries
more dollars to buy a barrel of crude than it did three years ago.
Amid this uncertainty and unrest, speculators try to forecast future
prices and price shocks, pay less today for crude oil that could cost
more four weeks hence, and get the best possible price for clients who
need reliable supplies. When they’re wrong, speculators end up buying
high, selling low and losing money.
Oil speculators play a vital role, just as they do in corn and other
commodities futures markets.
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