Gas prices continue to rise, which is finally
giving Republicans an issue. Mitt Romney is demanding the President open
up more domestic drilling; the super PAC behind Rick Santorum just
released a new ad in Louisiana blasting the President on gas prices; and
the GOP is attacking the White House on the Keystone XL Pipeline.
But the rise in gas prices has almost nothing to do with energy
policy. It has everything to do with America's continuing failure to
adequately regulate Wall Street. But don't hold your breath waiting for
Republicans to tell the truth.
As I've noted before, oil supplies aren't being squeezed. Over 80
percent of America's energy needs are now being satisfied by domestic
supplies. In fact, we're starting to become an energy exporter. Demand
for oil isn't rising in any event. Demand is down in the U.S. compared
to last year at this time, and global demand is still moderate given the
economic slowdowns in Europe and China.
But Wall Street is betting on higher oil prices in the
future -- and that betting is causing prices to rise. 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.
Bart Chilton, a commissioner at the Commodity Futures Trading
Commission -- the federal agency that regulates trading in oil futures,
among other commodities -- warns that too few financial players control
too much of the oil market. This allows them to push oil prices higher
and higher -- not only on the basis of their expectations about the
future but also expectations about how high other speculators will drive
In other words, a relatively few players with very deep pockets are placing huge bets on oil -- and you're paying.
Chilton estimates that drivers of small cars like Honda Civics are
paying an extra $7.30 every time they fill up -- and that money is going
into the pockets of Wall Street speculators. Drivers of larger vehicles
like the Ford Explorer are paying speculators $10.41 when they fill up.
Funny, but I don't hear Republicans rail against Wall Street
speculators. Could this have anything to do with the fact that hedge
funds and money managers are bankrolling the GOP as never before?
Wall Street isn't bankrolling Democrats nearly as much this time
around because the Street is still smarting from the Dodd-Frank Wall
Street reform law pushed by the Democrats, and from the president's
offhand remark in 2010 calling the denizens of the Street "fat cats."
The Commodity Futures Trading Commission is trying to limit how much
speculators can bet in oil futures -- a power it was given by Dodd-Frank.
It issued a rule in October, but it won't take effect for another year.
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Meanwhile, Wall Street has gone to court to stop the rule. It's already won a stay.
As rising gas prices start wagging the election-year dog, the
President should let America know what's really causing prices to rise.