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With Gas Prices, It’s ‘Heads I Win, Tails You Lose’

You might think that the declining price of gasoline means that we don’t have to pay attention to all that talk about oil speculation driving up the price of oil. Right?


Even though the price of gas has fallen, you’re still lining the pockets of Wall Street every time you gas up. As Memorial Day approaches and summer driving season kicks off, remember that speculators will clean up even as the price of oil drops.

It’s a rigged game, with rules that make you give your hard-earned money to financiers no matter what. It’s like the bully on the playground who established the ground rules for a coin toss game as “heads I win, tails you lose.” Under those rules, the bully always wins.

In this case, the bully is Wall Street. With oil markets, loose rules allow speculators – not end users – to dominate the volume of trading, increasing price volatility and making more money the more the price changes – whether that price is going up or down.

Goldman Sachs has admitted that speculation adds as much as $23.39 per barrel to the price of crude. That translates to 56 cents per gallon. (See here if you want confirmation.)

So, we pay more. They get richer. And it has little to do with actual supply and demand.

Illegal manipulation

You would think that since speculators can legally game the system, they wouldn’t need to resort to fraud or illegal manipulation. But last year, federal regulators charged five oil speculators with manipulating the price of oil in the early months of 2008 and making a $50 million profit from the scheme.

The group bought oil contracts, creating the perception of an oil shortage that in turn drove up oil prices. Then, having artificially inflated oil prices, they paradoxically bet that oil prices would fall, which of course is exactly what happened when they turned around and sold the original contracts, in effect ending the bogus shortage they created in the first place.

This one example of illegal activity took place at a time when oil prices were climbing toward a record high of $147 a barrel.

One way to solve this is for the Department of Justice to investigate fraud and manipulation in the oil markets. President Barack Obama has directed the agencies responsible for overseeing oil markets to root out anti-competitive and collusive behavior by the Big Banks that could be contributing to higher prices for families.

So far, it hasn’t produced any public findings.

We need the working group to get on the stick and report back to the American people. Public Citizen is urging citizens to to tell the Department of Justice to root out corruption in the oil market.

Legal manipulation

Back to legal manipulation. Efforts are being made to curb it, but they aren’t enough.  For instance, the Commodity Futures Trading Commission last year issued new rules pursuant to Dodd-Frank designed to curb excessive speculation in energy commodity markets, but they do not go far enough to protect consumers. And Wall Street is challenging even these inadequate rules.

Solutions include establishing a legal limit on the amount of oil contracts that any single trader can hold at once (legislation that would do this has been introduced), restricting communication between petroleum energy infrastructure affiliates and trading affiliates, improving  trading market data disclosure by publishing trader-specific positions,  requiring companies to detail energy trading activities in their financial reporting and imposing financial disincentives to speculate. See more detail. Some of these solutions are contained in legislation introduced by U.S. Sen. Bernie Sanders (I-Vt.) called the End Excessive Oil Speculation Now Act.

Long-term solutions

Long-term, we need to wean ourselves off gas. We can do this by aggressively investing in electrification of the transportation sector and mass transit.

Want to help? Tell our government to stand up to the bully on the playground and stop Wall Street from cleaning up at the expense of everyone who drives.

Until then, it’s more pain at the pump while execs cash in.

Tyson Slocum is Public Citizen’s Energy Program director. Follow him on Twitter @TysonSlocum.