A new report came out today, evocatively titled, “How Speculation is Affecting Gasoline Prices Today”.
The report, authored by Robert Pollin and James Heintz with University of Massachusetts, Amherst Americans for Financial Reform (AFR), substantiates that gas price spikes are not simply a result of supply and demand.
Rather, rampant speculation on oil trading is driving up the cost of gas at the pump and threatening our economic recovery.
The report’s core findings:
• Without the influence of large-scale speculative trading on oil in the commodities futures market, the average price of gasoline at the pump in April would have been $3.13 rather than $3.96.
• This means that the average U.S. consumer paid a 83 cent per gallon premium in May for their gasoline purchases due to the huge rise in the speculative futures market for oil.
• The average U.S. auto owner paid what amounted to a “speculative premium” of about $41 in May and a two-car family paid about $82 in May - if this continued for a full year, it would cost a one-car family $492 and a two-car family $984. And for the broader economy, this report estimates the speculation impact for May was $1 billion.
(Someone should figure out how to itemize this amount onto everyone’s gas receipt and call it the ‘Wall Street Premium’.)
The authors anticipate some of the possible questions that often come up about this - the role of Middle East instability, rise in global oil demand, and peak oil – and effectively demonstrate that neither of these three issues are significant factors in current gas prices.
We could cut gas prices right now – at no cost to the government or taxpayers – just by restricting speculation in the oil futures markets. And in fact, the Wall Street Reform Act required the Commodity Futures Trading Commission to impose strict limits on the amount of oil that Wall Street speculators could trade in the energy futures market by January of 2011. But in part because of lobbying from big financial firms, that authority has not been used to date.
The study’s methodology is explained at length in the report.