Publisher's Note: A crude lie
By Jody Reese
Market divas would have you believe the rise in gasoline prices is the result of higher demand from China and India, and that like the weather there is little that can be done about it.
The demand for gasoline and other crude oil products has not increased dramatically over the last year. While crude prices have doubled, demand worldwide is up only 2 percent (rising demand from India and China is being offsett by lower demand here). For the month of March Americans drove 4.3 percent fewer miles than the year before — the single largest drop in miles driven ever in the country’s history. And yet, the price of gas continued to surge. Even Saudi Arabia has argued that the increasing prices of crude are unrelated to supply and demand. They blame speculators. Common sense seems to support the Saudi explanation: supply has remained the same while demand has leveled off and yet crude prices are up 100 percent. Add to that that billions of dollars from investors has poured into commodities and the price of crude is less about demand in China and more about demand on Wall Street — for more profits in the wake of lackluster stock and bond markets. The weakness in the dollar also can’t account for the 100-percent change in crude prices.
This run up in crude prices is reminiscent of the California energy crisis in 2001, when energy traders manipulated the market to create huge price spikes, causing power to be shut off to some towns. Eventually, investigations revealed that Enron and other traders helped orchestrate the entire crisis to make billions.
A market is a market, one might argue, and prices on that market are market prices. That is the price someone is willing to pay for that good. In an open market, such as the major U.S. stock exchanges, you’re right, but some commodities trades, such as in crude oil, are actually done in secret.
In 2000 Enron helped push through a bill that deregulated the energy trading trading business, moving it from an open system to a secret one.
This secret trading system makes it impossible to find out who is trading in crude oil futures or how these trades are being valued. In this secret system a trader could trade oil futures to a buddy and then have them traded back, driving up prices and earning millions in commissions. It could be one of the largest grand thefts of the century and we would never know about it because it’s done in secret.
The huge increase in gas prices is not a supply-and-demand problem, it’s a people problem. Congress needs to kill the Enron law now. Call your Congressmen and tell them you’re tired of being swindled at the gas pump. It’s time to fight back: Sen. John Sununu, 647-7500; Sen. Judd Gregg, 622-7979; Rep. Paul Hodes, 223-9814; Rep. Carol Shea-Porter, 641-9536.