Once again, speculators behind sharply rising oil and gasoline prices
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http://www.mcclatchydc.com/2012/02/...ind.html#storylink=omni_popular#storylink=cpy
WASHINGTON U.S. demand for oil and refined products including gasoline is down sharply from last year, so much that United States has actually become a net exporter of gasoline, unable to consume all that it makes.
Yet oil and gasoline prices are surging.
On Tuesday, oil rose past $106 a barrel and gasoline averaged $3.57 a gallon thanks again in no small part to rampant financial speculation on top of fears of supply disruptions.
The ostensible reason for the climb of crude prices on the New York Mercantile Exchange, where contracts for future delivery of oil are traded, is growing fear of a military confrontation with Iran in the Persian Gulf's Strait of Hormuz, through which 20 percent of the world's oil passes.
Other factors driving up prices include last month's bankruptcy of Petroplus, a big European refiner, and a recent BP refinery fire in Washington state that's temporarily crimped gasoline supply along the West Coast; gas now costs an average of $4.04 a gallon in California.
While tension over Iran has ratcheted up over the last few months, the price of oil and gasoline has leaped far beyond conventional supply and demand variables. Financial speculators are piling into the market, torquing the Iranian fear factor into ever-higher prices.
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Consider that light, sweet crude trading on the NYMEX changed hands at $79.20 a barrel just four months ago, but soared past $106 a barrel Tuesday afternoon, partly on news that Iran would halt shipment of oil to Britain and France. But those countries already had stopped buying Iranian oil. And Didier Houssin, the International Energy Agency's director for energy markets and security, said that "there are alternative supplies that can make up for any loss of Iranian exports," The Wall Street Journal reported.
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What should the price of oil be if left to conventional supply and demand market fundamentals? Canada's the largest supplier of imported oil to the United States, which now actually produces more than half of the oil it consumes. Production and delivery costs for a barrel of oil from Canada are about $75 a barrel. The market-fundamentals cost for a barrel of oil is in that ballpark; above that, speculation sets the prices.
"It's as simple as that," said Gheit, who has testified before Congress and called for regulatory limits on speculation in commodities markets.
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"These people are not there to be heroes. They are there to make money. It's our fault because we are allowing them to do that," said Gheit. "Obviously these people are very strong, and the financial lobby is the strongest of any single lobby. I've been in this business 30 years, and I can tell you I think this is smoke and mirrors."
What's indisputable is that oil and gasoline are not in short supply, and that demand remains weak. That was crystal clear in the latest weekly energy market update by the U.S. Energy Information Administration_ published last week for the week ending Feb. 10.
More at link with a couple of good charts......
