The Gas Wars

by on February 21, 2012 · 7 comments

in American Empire, Economy, Energy, Environment, Popular

By Robert Reich / Robert Reich’s Blog – RSN / February 21, 2012

Nothing drives voter sentiment like the price of gas – now averaging $3.56 a gallon, up 30 cents from the start of the year. It’s already hit $4 in some places. The last time gas topped $4 was 2008.

And nothing energizes Republicans like rising energy prices. Last week House Speaker John Boehner told Republicans to take advantage of voters’ looming anger over prices at the pump. On Thursday House Republicans passed a bill to expand offshore drilling and force the White House to issue a permit for the Keystone XL pipeline. The tumult prompted the Interior Department to announce on Friday expanded oil exploration in the Arctic.

If prices at the pump continue to rise, expect more gas wars.

In fact, oil prices are rising for three reasons – none of which has to do with offshore drilling or the XL pipeline.

The first, on the supply side, is Iran’s decision to cut in oil exports to Britain and France in retaliation for sanctions put in place by the EU and United States. Iran’s threat to do this has been pushing up crude oil prices for weeks.

The second, on the demand side, is rising hopes for a global economic recovery – which would mean increased oil consumption. The American economy is showing faint signs of a recovery. Europe’s debt crisis appears to be easing. Greece’s pending bailout deal is calming financial nerves on both sides of the Atlantic, and the Bank of England and European Central Bank are keeping rates low. At the same time, China has decided to boost its money supply to spur growth there.

Neither of these would have much effect were it not for the third reason – overwhelming bets of hedge funds and other money managers that oil prices will rise on the basis of the first two reasons.

Speculators have pushed crude oil to $105.28 per barrel, up 35 percent since September. Brent crude, Europe’s benchmark, is now $120.37 a barrel – also worrisome because many East Coast refineries use imported oil.

Funny, I don’t hear Republicans rail against speculators. Could that have anything to do with the fact that hedge funds and money managers are bankrolling the GOP as never before?

But that’s okay. The gas wars may come to a screeching halt before too long, anyway. So many bets are being placed on rising oil prices that the slightest hint the speculators are wrong – almost any sign of expanding supply or declining demand – will set off a sharp drop in oil prices similar to the record one-day fall on May 5 of last year.

{ 7 comments… read them below or add one }

The Bearded OBcean February 21, 2012 at 2:47 pm

Speculation is different from manipulation. Anyone who buys a stock is, technically, a speculator. Liquidity is also provided by the speculator. Perhaps what is most troubling is that oil prices have soared while overall retail gas deliveries have dropped.


RB February 22, 2012 at 7:02 am

The refiners, Tesoro and Valero, are up 30% year to date. You buy them before gasoline moves. Time to leave them and switch to the drillers. Only Robert Reich is surprised that gasoline prices go up in the spring and into Memorial Day.


OB Mercy February 21, 2012 at 3:25 pm

And I heard on a local radio station this morning that two refineries in the area are doing a clean up, and with them being closed, it’s making the prices rise….albeit, locally. Wonder if that is B.S.? Heard it’s supposed to go up to $5 shortly. Pretty soon, I won’t be able to afford to drive to work!


RB February 21, 2012 at 4:30 pm

In 1980 there were 250 refineries, we now have 149. There has not been a new refinery built in 35 years. I expect $4.50 by the end of May. And with California special standards and Iran problems, $5 is possible. Now you could follow the wishes of the government and buy a Volt for $40.000.


Shane Finneran February 22, 2012 at 10:09 am

Gas never broke $2.00/gallon before the oily George W. Bush led our 2003 invasion of Iraq.

Prior to 2003, on an inflation-adjusted basis, the price at the pump had been virtually unchanged for the preceding 17 years.


RB February 22, 2012 at 11:46 am

Yes, 17 years of virtually unchanged gas prices….after we built the Alaska pipeline.
I wonder if anyone in Washington could connect those dots.

I am also glad to hear gas price were all Bush’s fault too. So now that he is gone we could expect prices to drop? I was afraid all those new drivers in China and India was increasing demand and price.


Shane Finneran February 22, 2012 at 5:50 pm

I just noted the timing of price evolution. I didn’t blame Bush. I wouldn’t pretend to know what drives gas prices. There are probably many factors in play.

But Iraq has the second-largest oil trove in the world. And Iraq got knocked over in 2003. Which is when prices started going nuts.

Did China and Indian drivers start driving in 2003? Did the Alaska pipeline stop pumpin’ in 2003? Any other catalysts come to mind?


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