The big blame game is really getting to be too much. 77% of Americans blame the government for high gas prices, 75% blame oil companies, and 70% blame foreign oil producers, per a recent Consumer Reports survey. But all of those culprits pin the blame on another party. So, really, who is to blame for high oil prices?
Oil companies? Many like to blame big oil companies with their “windfall” profits. But they only get 4% of the cost of gasoline at the pump. Big oil often passes the blame onto speculators, the government, or a dearth of supplies.
Speculators? They’re not to blame either, according to recent news. First of all, the percent of futures contracts held by speculators has declined over the past year, so they can’t be to blame. Secondly, in order for speculators to actually change the price of oil, they’d have to take the physical oil off the market. Which they don’t - traders buy a futures contract, or an agreement for the seller to deliver a certain amount of oil on a certain future date for a certain price. But they resell the contract just before the date of delivery, and it typically rolls over into the next month’s contract.Thus, speculators don’t affect the actual spot-price of oil.
In fact, futures trading actually encourages oil companies to make costly investments in new production, which keeps the gas prices down. And they may actually discourages hoarding and makes prices less volatile.
Oil producers? The US Energy Secretary blames insufficient oil production, which has not kept up with demand. But they, namely OPEC, have been blaming speculators and the decline in the dollar, indicating that we are gouging ourselves. OPEC Secretary General stated today there is “no shortage” in the oil market.
The news? Economist Martin Feldstein concludes in today’s WSJ that “news stories, rumors and industry reports can cause substantial fluctuations in current prices – all without anything happening to current demand or supply.”
Congress? While only 4% of the cost of gasoline goes to oil companies, 15% of the cost of gasoline goes for taxes. Plus, Congress prohibits the production of domestic oil and natural gas, so they’re certainly to blame, right? This op-ed argues that if Congress were even to announce it has opened the way for domestic production, prices would drop. There’s that “news stories, rumors, and industry reports” component again. Congress likes to also blame the speculators. But a recent Fortune article invites Congress to “demonstrate a basic understanding of the mechanics of futures trading… Even better, they should be required to explain in detail how it is that investors who never take delivery of a single barrel of crude - and thus never remove a drop of oil from the open market - are causing record high oil prices.”