Gasoline prices increase because of speculative investing

Some of the explanations for America’s current relatively high gas prices contain a kernel of truth. Countries have hoarded petroleum in order to have enough of it on hand if Israel and the United States attack Iran and thereby disrupt the flow of crude oil from the region. There have been incidental disruptions to the global production of gasoline that do account for local price increases. But the speculative trading of crude oil is the primary mechanism for the price increases seen by consumers at the pumps over the past year. Rentier capital now dominates the commodity market for crude oil, according to a McClatchy report:

Historically, financial speculators accounted for about 30 percent of oil trading in commodity markets, while producers and end users made up about 70 percent. Today it’s almost the reverse.

A McClatchy review of the latest Commitment of Traders report from the Commodity Futures Trading Commission, which regulates oil trading, shows that producers and merchants made up just 36 percent of all contracts traded in the week ending Feb. 14.

That same week, open interest, or the total outstanding oil contracts for next-month delivery of 1,000 barrels of oil (about 42,000 gallons), stood near an all-time high above 1.486 million. Speculators who’ll never take delivery of oil made up 64 percent of the market.

Speculators are motivated only by profit-taking. Thus:

Not surprisingly, big Wall Street traders on Tuesday projected oil will rise above $112 a barrel; some such as Swiss giant Vitol even suggested $150-a-barrel oil is coming soon. When they dominate the market, as they do, speculators’ bids can make their prophecies self-fulfilling.

Austerity is for the “have-nots,” Alan Simpson’s “little people.” Times are fat for the “haves,” who have the means and the will to profit well from the misery of others.

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