Aug 12, 2008 - 04:06:16 CDT
With the high price of gas siphoning the wallets of American citizens, everyone is looking for someone to blame.But the price of gas may be the end result of a multitude of factors.
Sen. Byron Dorgan, D-N.D., held a press conference last week, in which he said oil speculators were responsible for the high prices of crude oil, which peaked at $148 a barrel on July 11. Since then, prices have fallen roughly 30 percent.
"Excess speculation" has broken the oil commodities market, he said, artificially driving the price of crude oil to new highs.
Dorgan helped create legislation to reduce the power of speculators in the market in hopes of bringing the price down further.
But it's not that simple, says Eugene Graner.
Graner, president of Heartland Investor Services, said oil non-commercial traders are not the boogeymen Congress makes them out to be; they're just business people.
"Speculators are not any part of the problem," he said.
He insists speculators are just riding the inevitable wave of rising gas prices, and their investing in oil is no different from investing in the stock market or any other commodity.
Instead, world demand, the policies of the Federal Reserve and U.S. lawmakers are responsible, Graner said.
With demand increasing from places like China and India, the price of oil was bound to rise - it's supply and demand, he said.
Fadel Gheit, senior energy analyst with Oppenheimer and Co., disagrees.
As one of the advisers on Dorgan's bill, Gheit said that demand was not significant enough to warrant the sharp rise of gas prices this year, and that commodities investors pushed the market.
"It's the money game. It has nothing to do with supply and demand," he said.
He said the sharp rise in food and energy prices in early 2008 are due to people playing the commodities market in the wake of the housing market crash.
He said powerful investors drove the price of oil up for the sole purpose of making money. How they did it, he said, is simple.
"It's the commodity bubble. It was totally irrational behavior. It's like when somebody screams 'fire' in a crowded place," he said. "People are going to run. They're not going to say, 'Let me see if there is some smoke here.'"
Graner said another influencing factor was the declining value of the dollar.
Because oil is valued in U.S. dollars, when the dollar began to depreciate after the Federal Reserve lowered interest rates last August, oil became less expensive for foreign buyers, and more expensive for domestic buyers. It's a consistent inverse relationship over the previous 12 months, Graner said.
Karel Sovak, assistant professor at the Tharaldson School of Business at the University of Mary, said while that may be partly true, it's not the whole picture.
He said that while the U.S. dollar is used to value oil, if the two were directly related, oil prices should have dropped as the dollar gained strength in the late '90s. That wasn't the case, as oil prices rose or remained stable.
Graner also said lawmakers didn't consider China and India's energy needs when crafting America's energy policy.
Because there is a limited supply of oil, when other nations increase their demand, it directly affects prices in the U.S., and Congress didn't plan for that, he said.
In all of this, he said, speculators are merely businessmen engaging in capitalism. And he points to the spring as evidence that the speculators weren't the only factor driving the market.
He said the speculators began to reduce their position - selling their oil futures and getting out of the market - between March and May, even as prices were still rising, and continued to rise, into July.
"That is the smoking gun, that it's not the speculator driving it higher," he said.
Sovak said there are many facets to consider when looking at the price of oil, and that there is no simple formula.
"There are too many other external factors: speculation, the war - and supply and demand," he said.
Depending on who is speaking, the price of gas can be blamed on a number of causes, but most experts agree it is a multifaceted problem requiring a multifaceted solution.
"It's not one perfect piece," Graner said. "It's many pieces coming together."
Good for Them wrote on Aug 12, 2008 9:18 PM:
bigpoppakdog wrote on Aug 12, 2008 5:29 PM:
OilDollar wrote on Aug 12, 2008 3:35 PM:
Sovak needs a refresher course in historical prices. Crude oil averaged just about $12/bbl in 1998 on an inflation-adjusted basis which was pretty much an all-time annual low for crude oil. (It was about $15/bbl in 1999). He may want to rethink his comment/quote in the story. "
BJB wrote on Aug 12, 2008 3:16 PM:
wolfmanjack wrote on Aug 12, 2008 2:48 PM:
schputz wrote on Aug 12, 2008 1:03 PM:
and $3.88 in Bismarck. That I'm afraid folks is not speculation but greed. "
halatbis wrote on Aug 12, 2008 7:30 AM:
Congress, in this case, makes the problem worse by sending the message that the U.S. will not increase its domestic supply. Dorgan is part of the problem. "
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