Here’s another reason to not like Wall Street, as if we needed more: Gas prices are rising right now not just because of instability in the Middle East, but as a result of Wall Street speculators and traders. Recent reporting indicates that speculators and traders are holding on to a record number of gasoline contracts, equal to roughly 44 percent of U.S. inventories of gasoline. In other words, speculators and traders, banking that gasoline prices will go even higher possibly due to a looming confrontation with Iran, are holding on to gasoline contracts to sell them when the price of gasoline increases. In doing so, they are artificially raising the price of gasoline. So, eventually, Wall Street will have a huge payoff when they sell the contracts after gasoline prices rise and, in the meantime, the average American will pay more and more for gas, effectively paying for Wall Street’s boon. Huh, where have I heard this story before?
The latest Wall Street manipulation is exactly what is wrong with our current economic model. Prices are not rising due to an increase in demand. Indeed, as the graph below shows, Americans are driving less than ever and with more fuel efficient cars so demand for gasoline is actually decreasing. Demand is down but prices are rising due to market manipulation. How is this dynamic an effective economic model? How many times do we have to see this play out before any action is taken?
In response to the increased prices, President Obama has reiterated his “all of the above” plan that would increase domestic production, further develop clean energy and increase energy efficiency standards. While preferable to the conservative mantra of “drill baby drill,” the emphasis on increasing domestic production tends to refer to increasing offshore drilling or increasing natural gas production through hydro-fracking, both of which have big environmental and economic costs.
As we’ve written before, the real key to energy independence is to move away from big corporate energy and price manipulations to local production of renewable energy. If individuals could help meet their own energy needs, the stranglehold Big Oil and Wall Street have over our energy dependence would start to loosen. Strong support for renewable energy development and deployment would set us on this path. How many more price manipulation cycles do we have to go through before decision makers wake up to this fact?