We can all agree that the price of gas is going up. In Economics 101, you are taught that price is determined by supply and demand. This means that prices are rising because supply is decreasing, demand is increasing, or some combination of both. Let us test this theory.
According to the Oil Price Information Service (OPIS) demand has declined to what it was in 1997. The International Energy Agency (IEA) has forecast that global demand will increase by 0.9% this year. We are at the lowest demand in a decade, with a predication for a slight increase to occur this year, yet we are paying almost record high prices.
What about the supply of Oil. According to the IEA, Non-OPEC supply fell slightly (0.2 million barrels/day), for reasons including the escalation of conflict in Syria, the Sudan, outages in the North Sea. The 2012 forecast predicts a rebound by Non-OPEC producers to increase production by 0.9 mb/d. The OPEC crude oil supply in January rose its highest level (30.9 mb/d) in January 2012. OPEC is considering a cut to the supply to 29.9 mb/d, a decrease in supply around 3%.
What about domestic production, a hot topic amongst Democrats, Republicans and Independents these days. The Energy Information Administration (EIA) shows that domestic oil production is at its highest in the last 8 years. Whether you agree with President Obama's domestic energy position or not, you cannot argue with the facts. Domestic oil production is up 200 million barrels per day since he took office.
What do the industry regulators say? Bart Chilton, Commissioner of US Commodity Futures Trading Commission (CFTC) says that Wall Street speculators cause the price of oil to increase by as much as 22%. What does OPEC say? Abdalla el-Badri, secretary-general of the Organization of Petroleum Exporting Countries says that price volatility is a direct result of rampant levels of oil speculation by hedge funds and speculators. What does Goldman Sachs say? That's right, one of world's largest and most powerful investment brokers has issued a warning statement saying “the price of oil has grown out of control due to excessive speculation.”
The CFTC, OPEC, Goldman Sachs, none of them said high gas prices were due to supply and demand.
Under power granted through the Dodd-Frank Wall Street Reform law, the CFTC will be able to limit speculation in October 2012. Of course the Financial Industry has taken the CFTC to court, citing that any regulations will have an irreparable effect on their members. You know what I would say to Wall Street? “Hey Wall Street would you like some cheese with your whine?” Actually, I would say you lost all free-market trust when you helped cause the current global economic recession. Furthermore, I see the that the Dow Jones is over 13,000 today, but the value of homes in my city are down as much as 50% since their peak.
Regulations on oil speculation is not a punishment for the global economic recession and the role Wall Street played in that. Quite the contrary, if we choose to regulate oil speculators we are proving that we have learned a valuable lesson, that some free-market enterprises cannot safely function without oversight. That when the price at the pump goes up 30 or 40 cents per gallon, the impact on the lives of all Americans, especially the 70 million Americans that are current living at or near the poverty line, is extremely harmful.
What can you do to help end oil speculation?
Call your congressman Jerry Lewis and tell him to stand up the people of American and put an end to the rampant oil speculation.
Washington D.C. - (202) 225-5861
Redlands, California - (909) 862-6030
Call your senators Dianne Feinstein (202) 224-3841 and Barbara Boxer (202) 224-3553 and tell them to support Independent Senator Bernie Sanders' legislation S.1200 End Excessive Oil Speculation Now Act.
What else can you do? This might be the most novel concept yet. You can drive your car less. You can bike more. You can walk more. As consumers (also known as people) we still have a role to play in this capitalist economy. If you don't like the price of something, don't use it.
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