Despite a growing consensus that speculators are behind recent price increases, the government’s almost year-old oil speculation task force has done little more than talk about the problem. From the beginning of January to the end of February, the average retail price per gallon of gasoline jumped 42 cents from $3.30 to $3.72–a spike of 12.7% in just eight weeks. This year’s pain at the pump is eerily similar to last year’s, when gas prices jumped 77 cents from $3.19 to $3.96 in just eleven weeks between February 21 and May 9–a leap of 24.1%.
In response to last year’s problem, in April 2011, President Obama and Attorney General Eric Holder announced the creation of the Oil and Gas Price Fraud Working Group, which was supposed to root out speculators who buy and sell oil futures based on the predicted price of oil. The trouble is, oil industry experts now estimate that financial speculators account for about 65% of the trading in oil futures contracts, up from 30% historically, leading many to conclude that the reversed ratio explains the high and volatile oil and gasoline prices. One analysis estimated that as much as 30% of the current price can be attributed to speculation. While the task force, which has met only four or five times, has been assisting a Federal Trade Commission investigation into gas prices since June 2011, a key problem is that most price speculation is legal, unless a trader relies on insider information or commits fraud, both of which can be difficult to prove.
Nevertheless, the fact that the U.S. today is producing more of its own oil than it has in years, and supply is actually outstripping demand, has many demanding action on gasoline prices. This year, however, the President is emphasizing his proposal to eliminate tax breaks that net the oil companies about $4 billion per year. Given the lack of success of the oil speculation task force, those tax breaks are probably safe for now.
To Learn More:
Whatever Happened to Task Force on Oil Speculation? (by Kevin G. Hall, McClatchy Newspapers)
U.S. Use of Gasoline is Down, Yet Pump Prices are Up as Speculators Move In (by Noel Brinkerhoff and David Wallechinsky, AllGov)
Gas Prices Up, but so Are Profits and Exports as Refiners Hold Back Production (by Noel Brinkerhoff, AllGov)
- Obama’s Oil Speculation Task Force Has Met Just A ‘Handful Of Times’ Since Its Creation (thinkprogress.org)
- speculation is expensive! (dimitrisnowden.wordpress.com)