Oil speculation is costing the trucking industry $29.1 billion a year according to Commissioner Bart Chilton of the Commodity Futures Trading Commission.
Oil speculation has caught the attention of Ohio Senator Sharrod Brown. According to Brown’s website, “Earlier this year, Brown announced new plans for cracking down on oil speculation, which he feels may be responsible in part for driving up prices at the pump. ”
Oil speculation works two ways. Here’s how it works: Commodities Traders speculate on how much oil will cost in the future. Say, you own a trucking company, and you know you need to purchase 100,000 gallons of gasoline in July but you hear gas prices will be going up in June, because speculators are predicting tensions with Iran. So, you purchase your gasoline in May at an inflated price but not as high as you would have in July…or so you thought.
July rolls around, and tensions with Iran aren’t what forecasters it would be, so oil prices aren’t as high as Wall Street speculators thought they would be, therefore the cost of gasoline doesn’t go up.
Or…
Speculators forecast travel during the spring months will decline, therefore the demand for gasoline will go down. Oil production companies will produce less gas. When spring comes, more travel than predicted, creating a higher demand for gasoline than what was supplied.
Many blame higher gas prices on the theory of supply and demand. Under this theory, the supply of oil is low and the demand is high. However, according to the Energy Information Administration, the supply of oil and gasoline is higher today than it was three years ago, when the national average for a gallon of gasoline was just $1.90. Meanwhile, the demand for oil in the U.S. is at its lowest level since April of 1997.
According to CNN.com, “A decade ago, speculators controlled only about 30% of the oil futures market. Today, Wall Street speculators control nearly 80% of this market. Many of those people buying and selling oil in the commodity markets will never use a drop of this oil. They are not airlines or trucking companies who will use the fuel in the future. The only function of the speculators in this process is to make as much money as they can, as quickly as they can.”
According to the New York Post, Peter Beutel, head of energy analyst Cameron Hanover, thinks gasoline should be selling for between $1.50 to $2 a gallon if all the speculative nonsense were factored out.
Gasoline demand is the lowest since records have been kept, says Beutel. On a four-week moving average ” which is the fairest way to measure these things ” demand is now 6.35 percent lower than a year ago. Demand had been growing about 1.5 percent to 3 percent a year during normal economic times. It’s just speculation gone berserk, says Beutel.
While Wall Street and Commodities Traders speculate and line their pockets, drivers fuel budgets are left to run on fumes.