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Who to blame for high gas prices

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Gas prices are rising, but the culprit may not be who you think.

Speculators are driving up the price of gas, at least according to Bernie Sanders, former senator from Vermont. According to an editorial from the senator, speculators now control about 80 percent of the oil futures market and are adding a 40 percent premium to the price of a barrel of oil. 

Highlights

By Catholic Online (NEWS CONSORTIUM)
Catholic Online (https://www.catholic.org)
2/29/2012 (1 decade ago)

Published in Business & Economics

Keywords: Oil, gas, prices, speculators, speculation, Wall Street

LOS ANGELES, CA (Catholic Online) - Across the nation, gas prices have skyrocketed to almost $4.00 per gallon. In many places, the price is already above the $4.00 mark. Prices are forecast to rise further. Oil has already surpassed $108. Although today, prices dropped slightly to just over $106. 

The quick blame is on Iran. Sanctions on Iran for refusing to answer concerns over its nuclear ambitions have raised tensions in the region to the point some fear a disruption in supply. Speculators are using the possibility of disruption to demand higher prices. 

However, according to Sanders, tensions with Iran are a feeble excuse because the fundamental laws of supply and demand do not support the current prices. Indeed, speculators work outside of those laws, placing virtual bets on the future price of oil based on rumors.

Meanwhile, the futures market remains unregulated and Wall Street lawyers buck the implementation of finance reform laws that could restrict the number of futures traders can buy. With reform efforts tied up in courts, and Iran refusing to cooperate with inspectors, the climate is just right for speculators to bet ever higher on oil futures. 

Unfortunately, this translates into pain you feel at the pump.

Back on Main Street, oil supplies are higher than they have been in years, and consumption of gasoline has dropped to its lowest since 2007.

Politicians have been quick to take up this issue, especially in an election year. President Obama has been warned that the spike in prices could damage the fragile economic recovery going on and the people have already been warned that any tax savings from tax cut extensions are now going into the pockets of speculators. 

This isn't sitting well with the people, a particularly serious fact in an election year.

If there's any consolation, the price of oil is bound to fall, and like a game of hot potato, somebody on Wall Street is bound to lose -- big. On Wall Street, they're known as "pigs" -- investors who try to make quick profits by speculating. The danger is that not every bet can be a winner. At the first sign of good news, such as a deal with Iran that prevents war, the prices will plummet and speculators who are holding high-priced futures will have to pay those prices regardless, literally losing their fortunes in seconds.

In the meantime, the pain continues for Main Street and a fragile economic recovery becomes increasingly uncertain. 

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