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The real reasons for high gasoline prices

By       Message Gregory Patin     Permalink
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Other factors considered to blame for rising prices feed into speculation rather than account for the price increase of gasoline. According to Robert Reich , who has served in three national administrations and is currently Chancellor's Professor of Public Policy at the University of California at Berkeley:


The Street is laying odds that unrest in Syria will spill over into other countries or that tensions with Iran will affect the Persian Gulf, and that global demand will pick up as American consumers bounce back to life. These bets are pushing up oil prices because Wall Street firms and other big financial players now dominate oil trading. Financial speculators historically accounted for about 30 percent of oil contracts, producers and end users for about 70 percent. But today speculators account for 64 percent of all contracts.

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Free market fundamentalists who insist that gasoline prices are on the rise due to supply and demand are overlooking some simple facts. Demand for crude oil is decreasing and supply is adequate. According to Reich, over 80 percent of America's energy needs are now being satisfied by domestic supplies. In fact, the U.S. is starting to become an energy exporter.


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The International Energy Agency (IEA) reports that the world oil supply rose by 1.3 million barrels a day in the last three months of 2011 while world demand increased by just over half that during that same time period. Gasoline usage is down in the US by 8%, Europe by 22% and has even fallen in China.


Recession across much of the European Union, a deepening recession in the United States and slowdown in Japan have reduced global oil demand while new discoveries are coming almost daily. Countries like Iraq are increasing supply after years of war. A brief spike in China's oil purchases in January and February had to do with a decision last December to build their Strategic Petroleum Reserve and is expected to return to more normal import levels by the end of this month.


While the Obama administration's energy policy is not to blame for rising gas prices, part of the blame for failure to effectively regulate the oil commodity market can be placed on both the current administration and Congress. In recent years, a Wall Street-friendly (and Wall Street financed) U.S. Congress has passed several laws to help the banks that were interested in trading oil futures.


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The Commodity Futures Modernization Act of 2000 (CFMA) was drafted by the man who today is President Obama's Treasury Secretary, Timothy Geithner. The CFMA, in effect, gave financial institutions free reign over derivatives trading in energy futures, absent any government supervision, as a result of the financially influential lobbying pressure of the Wall Street banks. Oil and other energy products were exempt under what came to be called the "Enron Loophole."


In 2008 during a popular outrage against Wall Street banks for causing the financial crisis, Congress finally passed a law over the veto of President George Bush to "close the Enron Loophole." As of January 2011, under the Dodd-Frank Wall Street Reform and Consumer Protection Act , the Commodities Futures Trading Commission (CFTC) was given authority to impose position caps on oil traders beginning in January 2011.

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Gregory Patin is a free-lance writer residing in Madison, WI. He earned a BA in political science from the University of Wisconsin - Madison and a MS in IT management from Colorado Tech. He is politically independent and not affiliated with either (more...)

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