Greedy oil speculators are manipulating markets and artificially driving gas prices higher, say many people, including President Barack Obama. Rubbish, responds Robert J. Samuelson, an opinion writer for The Washington Post.
The politically convenient fantasy regularly returns whenever gas prices jump, despite regular debunking, he writes.
In 2008 a Commodities Futures Trading Commission task force studying the allegation concluded that speculation was not a major factor in rising oil prices. In 2012 the head of the nonpartisan U.S Energy Information Administration testified to Congress that supply and demand issues and fears of Middle East supply interruptions, not speculation, were causing increasing prices.
Speculation is suspected because of oil's wild price swings, Samuelson writes.
Actually, it goes up and down due to changes is supply, such as new fields found, or changes in demand, such as less use due to a recession. Because oil is price inelastic — people need it to drive cars, heat homes and run factories — small supply or demand changes can prompt large price swings, he explains.
Although the late recession cut demand, an emerging recovery and China's booming oil consumption has reduced excess supply, naturally causing prices to rise.
Speculators are indeed putting more money into commodity futures markets, but futures markets, he says, are not like stock markets that are susceptible to price bubbles. Instead, they are "zero-sum games" with one investor losing and the other side wining.
In futures markets, an investor agrees to buy a commodity for a certain price at a certain future date. If the actual price goes up, the buyer wins. If it goes down, the seller earns money.
Yet many observers do blame speculators. "Today the price continues to be driven by excessive speculation," says OPEC Secretary General Abdullah al-Badri, according to Reuters. "There has been no shortage of oil in the market. Producers have been able to meet consumer needs. We also see this as being the case for the rest of 2012 and the foreseeable future."
OPEC has surpassed its production goal of 30 million barrels a day set last December, Reuters reported. That increased production has offset the drop in exports from Iran and other production disruptions.
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