The price of gasoline has dropped. In most cases to 80 cents a litre or so. Due to a collapse in the price of oil which has plummeted from a high near $150 in July to a low near $50 today. In my view, the price correction at the pumps is still not aligned to the cost side but at least it is better than paying $1.20 a litre.
Since 2004 the near tripling of trading in oil on the New York Mercantile Exchange (NYMEX), the world”™s biggest market, has neatly coincided with a tripling in the price of oil.
People far smarter than me determined that oil speculators were not really adding that much to the price despite the view that speculators turned oil trading into a global poker game and doubled the price of gasoline practically overnight.
The Economist, in a piece called Don’t Blame The Speculators, provided their perspective:
Despite their dismal reputation, the oil speculators provide a vital service. They help airlines and other big oil consumers to hedge against rising prices, and so to reduce risk ”” a massive boon amid the economic turmoil. By the same token, they provide oil producers with more predictable future revenues, and so allow them to expand more confidently and borrow more cheaply. That, in turn, should help to lower the price of oil in the long run. Any attempt to curtail speculation, by contrast, is likely to make life harder for firms and oil more expensive.
Back in May of this year, GlobalResearch made the following observation:
The price of crude oil today is not made according to any traditional relation of supply to demand. It”™s controlled by an elaborate financial market system as well as by the four major Anglo-American oil companies. As much as 60% of today”™s crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control of oil and its price.
It gets worse.
On August 21, 2008, the Washington Post reported that the Commodity Futures Trading Commission (CFTC) learned that an astonishing 80 percent or more of oil contracts on the New York futures market were held by speculators.
Financial firms speculating for their clients or for themselves account for about 81 percent of the oil contracts on the NYMEX, a far bigger share than had previously been reported by the agency.
At one point in July, a single foreign energy firm held 11 percent of all regulated NYMEX oil futures contracts for the purpose of speculation.
At a hearing of the Select Committee on Energy Independence and Global Warming on May 22, 2008, the Bush Administration’s top energy official, Energy Secretary Samuel Bodman, testified that he did not believe that speculation was playing any role in the run up in oil prices.
The cost to consumers for all of this nonsense is truly staggering. Untold billions of dollars. And now that the shock waves from the mad economic policies of the Bush adminstration continue to batter our economies, the speculators are bailing out. Victims, caught up in the same downdraft of a global meltdown in the financial markets.
And what were we told all along as the price of gas skyrocketed? A little fairy tale called Supply and Demand. You know the story: more demand in India and China means higher prices for gasoline in Canada.