10-16-09 by dugan
Oil prices hit another record for the year today, at over $78 dollars for each 42-gallon barrel in futures markets. That’s well over double the late 2008 low of 32 dollars a barrel. Here are the reasons given in various news stories: Dropping dollar, threats to Nigerian oil fields, a jump in U.S. industrial production, a drop in U.S. gasoline stocks. If that sounds like deja vu all over again, as Yogi Berra would put it, you’re right. And just like last year’s pricing roller coaster, it doesn’t add up, except for investor profits.
All of those "reasons" are small movements–the dollar is down in value against other currencies, but only 8.5% (slow-loading chart) from the beginning of the year. Industrial production isn’t up much, but investors are "optimistic." Violence in Nigeria isn’t actually up, but there are threats. Gasoline stocks are down largely because of refinery outages, not because of a big jump in consumption. So just like last year, when record energy prices helped kill the economy, it’s speculative investors driving energy prices.
By speculative investors I mean people and funds that aren’t primarily in the business of selling oil or buying oil products. Their interest is largely in driving up prices, not in a stable market–financial giants like Goldman Sachs, hedge funds and even individual investors. The damage they did was made explicit in a recent report from Houston’s respected Baker Institute. Implicit in the report is that unless speculation is brought under control by regulators, it’ll all happen again–the deja vu thing.
So it’s up to Congress and rgulators to stand up to the financial industry’s lobbying army. As with health care reform, there’s no guarantee that they will. But with the economic recovery at stake, consumers and industries (like airlines) that were ravaged by $4.50 a gallon gasoline and heating oil have to keep pushing for effective changes.
See more about what Consumer Watchdog and its allies are trying to get accomplished here.