Gas Price News: Prices Spiked By Speculators, Congressmen Claim


Excessive speculation in the oil futures market may be costing you 15 percent or more at the gas pump and playing a “significant” role in rising gasoline prices,  according to a joint letter from 68 members of Congress that ABC News has obtained.

The joint letter, which cites a recently updated report by the St. Louis Federal Reserve titled “Speculation in the Oil Market,” urges immediate action by the Commodity Futures Trading Commission to install caps on the biggest traders on Wall Street, preventing them from controlling unusually large positions in the oil futures trading market.

The Reserve’s report called “Speculation in the oil market,” which was just updated in February  2012, concluded there are two main factors for large price swings at the gas pump.

Read the full joint letter HERE

It says “global demand shocks,” such as those caused by turmoil in the Middle East, “account for the largest share of oil price fluctuations.”

The report also concludes “speculation played a significant role in the oil price increase between 2004 and 2008 and its subsequent collapse. Our results support the view that the financialization process of commodity markets explains part of the recent increase in oil prices.”
Read more…

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13 Comments to “Gas Price News: Prices Spiked By Speculators, Congressmen Claim”

  1. Your most common blogging mistake is that you find an article that supports your preconceived notions, link to it, and then go with it without question.

    You never dig deeper to independently verify or refute the article’s content. Perhaps you should.

    • “You never dig deeper to independently verify or refute the article’s content. Perhaps you should”

      I did previously. See my earlier posting Speculating Away Our Recovery”.

      Thanks for the comment.

      • I’ve looked at “Speculating Away Our Recovery”.

        First off, I like it because it is original writing, not comments on some else’s writing.

        Of the supportive links I checked so far, they generally support your narrative.

        Your depth of research in that article is unusually good… as liberal writings go.

        I’m working on other things right now, but I plan to write an assessment comment on that article as time permits.

        Btw, I invite you to critique any of my own writing. That is how I learn new things.

        I’m above average at factually defending my opinions, but can still be wrong.

      • “First off, I like it because it is original writing, not comments on some else’s writing.”

        As is the case with most of my original postings located under “Featured Posts”.

        “Your depth of research in that article is unusually good… as liberal writings go.”

        Uh… thanks? This sounds more like a dismissive comment disguised as a compliment. A bit of a generalization as well.

        “I’m working on other things right now, but I plan to write an assessment comment on that article as time permits.”

        Well I’ll look forward to reading what you have to say.

    • Of course mpbulletin’s notion is preconceived in that the facts reported by him pre-existed before his post. Oil prices have been artificially boosted speculation since the mid 2000’s.

      So, you’re another right wing, free market Repugnant-con who believes oil prices are set by the free market? I thought your kind became extinct with the end of the Bush presidency.

      • farlefty> You’re right there have been quite a few studies and reports put out since the gas price increases under the Bush administration and through Obama’s and many do cite the significant influence from the futures markets. Some also delve into classic supply and demand pressures but these are a bit difficult to accept given the conflicting analysis. More than likely there is a mixture of factors with overspeculation exerting more of an influence over the last decade.

        Thank you for the comments but let’s just tone down the name calling a bit. I prefer keeping it more on a professional level here in the forums. 🙂 That’s all I ask.

      • I seem to upset a few places where I post replies but I no longer suffer right wing fools lightly. I call them as I see them since those people pull no punches when criticizing progressives or anyone else they disagree with. But in difference to you, I will in the future reply directly to you and not your readers.

      • “But in difference to you, I will in the future reply directly to you and not your readers.”

        Oh, please don’t misunderstand what I meant. Feel free to engage anyone who comments on here. My preference for keeping things civil is to pull back from the name calling. I understand what you mean about the other side not pulling any punches and they should be able to receive as much as they give out. A couple of weeks ago someone came on here using the whole “kool aid drinking liberals” rhetoric and I called them out on that. So for consistency sake, I have to make that apply to everyone.

        But please don’t restrain yourself from debating others on here. I encourage interaction but let’s all just keep it civil and substantive.

  2. Unfortunately, the price of oil, just like gold etc are affected by the activities of the commodities speculators. They buy up the ‘futures’ of such commodities, it pushes up the price and then when the price peaks they sell and the price drops as soon as they feel it has bottomed out they start buying again and drive the price up.

    My late father in law always said that there is a pattern and that the Gas companies will push the price up until people get angry, then they will lower the price, but not down to it’s original price, for example, They went from $2 a gallon to $3 a gallon and then let the price fall back to $2.50 a gallon, people were happy because it was 50 cents cheaper a gallon, then it jumped to $4 a gallon and then fell back to $3.50 a gallon. Now we are heading to $5 a gallon and I am sure that if the pattern follows here in California then the price will fall back in a few months to $4.50 a gallon and people will give a huge sigh of relief that it is no longer $5 a gallon.

    He always thought, and I agreed with him, that the Oil Futures Speculators are mostly controlled or employed by the Oil companies for the most part.

    At the end of the day, it is the customers that are hurt financially by these practices, it doesn’t bother the speculators, and you never hear the Oil Companies screaming about it hurting them, it is the people that hurt and the small businesses that, under the overhead of the price of Gasoline, fail and cease trading.

    • There’s a lot of truth to that junknfunk. The companies may not have a much control as you’re thinking BUT the pricing floor change is an apt observation. It’s called a “shifting baseline”. And it works just like your father said. People are shocked by a particular price increase but then it drops back to something a LITTLE more tolerable which is accepted. Then it goes up again then drops back down a little but higher than the previous lower price…etc.
      Right now, here in California, anything under $4 is a relief. Back when prices first topped $2/gallon in 2004 or so I lived in Phoenix, AZ I saw people in the Hummers crying as they filled their tanks. As prices trended upwards throughout those years people just got used to higher “baseline” which became the “new low” that every other increase was gauged.

      It’s amazing what we do get used to. We’ll never see $2/gal gas again barring any serious drop in demand like this current recession caused when the bottom dropped out. .

      • All we need to do to return to $2/gal. gas is to put Mittens Romney in the White House. But that’s only if Michele Bachmann allows him to borrow her plan.

  3. Since I maligned you for this article, you are deserving of an explanation why I suggest you check your sources…

    First off… it baffles me that anyone would blindly accept the word of 68 Congressmen verbatim who signed a letter for anything of a technical nature, but that is your prerogative. But, really, they don’t understand things of a technical nature any better than anyone else.

    Speaking directly to the issue of political stunts and bias… all but one of the signitors are Democrats. Imagine that? What an amazing coincidence! The lone exception being Demo… Uh, I mean… Independent Bernie Sanders who is the first signer.

    Now, just because the letter was politically motivated does not mean it is wrong. Even liberals can be both politically motivated and correct… just like Republicans can.

    The main Forbes evidence sited in the letter is… wellll… speculative…
    The Forbes article says “the price of a barrel of oil MIGHT be as low as $74.61″… not that would be.

    Speculation has raised gas prices, for sure, but how much is a highly debated subject.

    Forbes is just making a speculative guess on their part that pump prices for gas is higher by 56 cents. It provides little concrete proof that speculation has raised the price of a barrel of oil $23.39. There are a lot of other more reasonable explanations… most of them sited in a St. Louse Fed February report.

    You mention the St. Louis Fed’s Feb 2012 report on oil price speculation. The St. Louis Fed is a highly reliable source of economic data.

    No where in their paper do they make any determination whatsoever on how much oil speculation has added to the cost of oil or gasoline. They suspect, using statistical analysis, that it may have had an effect between 2004 and 2008.

    The fact they rely on FAVAR (a Factor-Augmented AutoRegressive model) for their work is already a testament as to how weak the effect of oil speculation must be.

    If you look at their variance calculations on which they base their conclusions the connection looks even weaker!

    Assuming anyone reading this actually understands the Fed report, there is math in it (LOL!!), a full discussion of their methodology is beyond the scope of this response.

    Its the “financialization process” they credit more than anything else. That isn’t really “oil speculation” like we read in the paper. It is an effect of commodities occupying a larger share of financial portfolios… and that is ALL commodities, not just oil.

    In The Fed’s conclusions they say:
    “We …find that the increase in oil prices over the past decade is due mainly to the strength of
    global demand” and “speculation signi…cantly contributed to the oil price increase between 2004 and 2008” But no empirical values are specified for either.

    For the record…
    Nowhere in The Fed Feb 2012 report does it urge “immediate action by the Commodity Futures Trading Commission to install caps on the biggest traders on Wall Street” as stated in the article test above.

    • “Since I maligned you for this article, you are deserving of an explanation why I suggest you check your sources…“

      1st, let’s start off by tackling what appears, by the tone of many of your comments, to be knee jerk reactions to my posting of third party articles. You make some off the wall assumptions about WHY I post these and often times accuse me of bias. 1) I make no assertions that this not a Democratic, progressive-leaning blog. Those are the type of opinions that will be displayed here. 2) Having said that my original posts trend more towards the center of the issues unless I feel there are good reasons to attack one side or the other. 3) Please refrain from the lecturing on my ability to check sources. I am a well educated, published scientist who knows what constitutes valid sources. Now this is a blog NOT a scientific journal and should not be viewed as such. If I show a bit of biased perspective then be sure I am conscious of it. This does not however mean I do not support my arguments and/or claims with factual sources. 4) As far as the 3rd party articles I post… I post them because they hold interest for me and I assume many of those who have subscribed to this blog. They tend to be articles that do not readily show up on typical news sources and may offer a different perspective of the political world. Please stop taking them so seriously. They are just special interest types of postings.

      “ First off… it baffles me that anyone would blindly accept the word of 68 Congressmen verbatim who signed a letter for anything of a technical nature, but that is your prerogative.”

      “Blindly accept”… this is an example of one of those off the wall assumptions I’m talking about. Did you notice that the letter was based on the results of a report put out by the St. Louis Federal Reserve titled “Speculation in the Oil Market”. When I choose an article to post I look at the general source. This one is from ABC News and it cites this particular report. For a simple re-posting of an article of interest… those are valid enough sources.

      “Speaking directly to the issue of political stunts and bias… all but one of the signitors are Democrats. Imagine that? What an amazing coincidence! The lone exception being Demo”

      Does the mere fact that it’s signed by a group of Democrats automatically make it invalid? If this was ONLY about the text of a letter I more than likely would not have posted it. I felt it was worthwhile because it referenced the aforementioned report and people could go and look it up if they want to.

      As far as the St. Louis Report goes…

      On one hand you state they are a highly reliable source of economic data then deride them for their use of the FAVAR model, which given its widespread use does not speak much to its weaknesses you’re attesting to here. Now, ever tool has its strengths and weaknesses but given your previous statement about the Fed’s reliability would it not be valid to say they are able to effectively gauge the most appropriate tool for the study analysis? In addition, it appears this tool is used very broadly through out many business and economic studies so more than likely it’s not as weak as you’re suggesting. Plus, given the size of the dataset for a study such as this the FAVAR seems to be an appropriate tool.

      “Its the “financialization process” they credit more than anything else. That isn’t really “oil speculation” like we read in the paper.”

      Well sure it is. It’s the change of oil into a financial instrument that can be easily traded in market systems. It’s hard NOT to relate that directly to speculation.

      “In The Fed’s conclusions they say: “We …find that the increase in oil prices over the past decade is due mainly to the strength of global demand” and “speculation signi…cantly contributed to the oil price increase between 2004 and 2008″ But no empirical values are specified for either.”

      Page 22 Section 5 “Empirical Results”. You’ll find all the relevant references to Tables there. The conclusions section is not where the empirical results of the data analysis are reported.

      “Nowhere in The Fed Feb 2012 report does it urge “immediate action by the Commodity Futures Trading Commission to install caps on the biggest traders on Wall Street” as stated in the article test above.”

      Well no… few reports will do that directly. That call to put caps on trade is based on interpretations by those who read it. Perhaps there was consultation with other economists or the authors of the report not mentioned in the article.

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