Its easy to blame speculators. They do things most of us don't understand, they make the kind of money most of us don't earn, and we can blame them when we don't want to be honest and blame who is really causing this: ourselves. The reality is, only about $30 of that $145 is speculation. The rest is a result of two things, both of which were caused by the American consumer.

1. America spends more than it earns, which created a credit bubble, which burst and devalued the dollar. The result is that, on an international market such as the oil exchange, a dollar buys less of a commodity. What once cost $1 now costs $2.

2. Americans demanded big cars that had big motors, so that's what the auto makers built, and we couldn't buy enough of them.

What makes this all the more disgusting, is that both these things happened (or rather, continued to happen) post 9/11. We knew who attacked us. We knew how they got their money. And the American public did NOTHING about it. We didn't curtail our spending, and we didn't curtail our purchase of oil. In fact, we did the exact opposite. We bought more.

Most people will flame this post because they will not be able to understand it (they don't teach basic economics in schools anymore), or they won't want to admit to their own behavior.

Lets stop passing the buck, scapegoating boogiemen, and own up to our behavior.

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Artie:
I agree with your numbered comments, but not the rest.

My brother in law worked for BP/Amoco on the trading floor where they made money speculating (never delivering) on oil and gas. This is the trading group that tried to corner the propane market.

http://www.usatoday.com/news/washington/2007-10-25-2462193793_x.htm

He does make a lot of money, but none of it serves anyone but him and BP/Amoco. It's pure additional profit carved out of our pockets.

There has been a huge glut of gasoline (and also oil to a slightly lesser extend) inventories all this year as the prices of both have gone up and up. This is strictly because of speculators.

With worldwide demand for oil up, it'll never be as cheap as it once was, but gas prices are ridiculously high right now, higher than the actual supply and demand would dictate.

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No flaming here Artie, you're right on the mark. Most people think this is just another temporary recession, and then we'll be able to go on growing and consuming. The reality is that this is the beginning of the end of the current American consumer's lifestyle. By the way, since when did citizens in this country start being referred to as "consumers" instead of people?

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Why not, I'm not claiming that speculation hasn't played a role, as it has, to the tune of probably 20-25%. But it is far from the sole or even the primary reason for oil climb as many would like to believe. The media (which gave up informing people long ago and now simply scares and titilates them) has latched on to the speculator-as-foil story line because it plays well and gets the less informed riled up. Bu the truth is, oil is inflated because we the consumer have refused to curtail our spending, and the result is a grossly depressed dollar and cars that do not reflect current energy realities. Throw in emerging market energy demands and Peak oil theory, and you have the real reasons for the run up in oil.

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why not the LS2LS7?

You posted that "there has been a huge glut of gasoline (and also oil to a slightly lesser extend) inventories all this year."

I wonder if you would be so kind as to substantiate that claim ?? Perhaps with DOE numbers or some other official source. While I understand the "common wisdom" is seldom correct your assertion seems to be so contrary as to be a fantasy.

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I don't know anything but what my trader relative told me. He actually has been betting for prices to drop on increased inventories (which are not the same as supplies), but has lost money on these bets because it hasn't reversed.

This link seems to back some of it, but would state the situation reversed in May. Perhaps this is correct and my info is just out of date.

http://www.oilmarketer.co.uk/oil/inventories/

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Oil prices go up! It's the speculators!

Fannie Mae goes down! It's the speculators shorting!

Come on, enough with the scapegoats.

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@Mat et al.

Look, I'm not saying that it's all the responsibility of the speculators. You completely misread me if you do. Our demand for gas goes down with high gas prices because whereas EVERYTHING is more expensive, so is gas. So when we're not buying EVERYTHING, we're not helping the companies selling us those items offset their fuel costs. Moreover, we're not spending our own money on fuel. Ergo, demand goes down, supply rises, price drops.

However, when our demand goes up with a fall in prices, it IS the speculators who end up betting money on the demand staying consistent, which in turn drives up the price further than demand itself would sustain.

There's plenty of blame to go around, but $4+ is not demand. $3.50 is demand. That extra 50 cents? Speculation. Period.

And don't give me the "Federal taxes are huge on gas" BS. Yes, they are, but they don't rise according to price. It's not a percentage tax; it's a gross tax. At $4 per gallon, federal taxes 18 cents per gallon. At $3 per gallon, federal taxes are still 18 cents per gallon. I know it's crazy, but it's the way it works. The tax in Pennsylvania is the highest with an additional 31.5 cents coming from taxation. So you've now accounted for $0.50 of the price of gas.

It's not pure demand driving the cost so high. It's speculation. Take it or leave it, but it's true.

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Artie - you're pretty much right on the ball (tho, some would say that speculation comprises more like $40-50 of the price when it was around $145 bbl).

Keep in mind deregulation of the commodities market has led to hedge funds, pension funds, etc. pumping unforseen dollars into oil, esp. when other sectors plummet (not that different from when gold skyrocketed during the dot.com crash).

As stated, another big reason is the weak dollar. The huge national debt is a significant component of the high price of oil.

Bush really laid a big one, when after 9/11, he told the country to SHOP (get into greater debt) and not to cut back on gasoline consumption (as well as not instituting a program for greater energy independence as the Japanese and the Brazilians have done).

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Wow you guys are all way off, well, maybe not way off, but pretty far.
It's funny how everyone is blaming the cost of oil being high on everything but the actual reason why it's actually high. It reminds me of a kid sneaking out of a room quietly well his siblings get scolded for something he did.
Oil is high for one reason, tight supply.
Now, you have to ask yourself why oil supplies are tight.
The knee jerk reaction has been to blame the oil companies for years, like the have a switch that they magicly switch on when they want more profit. Of course no one seems to remember that oil was 16 bucks a barrel in 1999. I do, because I was buying gas at .69 cents a gallon. I guess the oil companies profit switch had burnt out and they were waiting on an electrician to fix it? Any who.
There is only so much oil in the system and when the system does not keep pace with demand then you will have the inevitble price increase. In 98/99 there was a bunch of oil in the system hence the cheap prices.
Notice I didn't say there was only so much oil, just that there was not as much that is needed in the system. We have plenty of oil, we (meaning man) are finding lots of oil all the time, two huge finds off the cost of Brazil in the past year that appear to be as large as what's in the Middle East. Of course, none of this matters as long as the system can't keep up with demand.
Oil speculators make their money on betting what will happen in the future. There are all kinds of speculators, not just oil, but right now oil speculators are the boogie men so we can focus on them.
The myth that they are buying up oil to make a profit is quite silly and just shows how little people know about economics. That would be like cabbage speculators buying truckloads of cabbage to drive the costs up so they could turn around and buy more cabbage with their profits. Of course then you get into diminishing returns quite quickly and before long you are left with a whole bunch of cabbage that you end up selling at a loss.
Doesn't work that way. Oil speculators look at the world market and current supply situation and demand and weather and wars and political climates and bet on prices going up. Right now, the same speculators that you hate for making a profit are losing their shirt because they have oil contracts that they can't move unless they sell them at a loss. Of course, they can hold them and hope the price of oil goes up before the contract becomes due, but then again that's a risk they have to take.
No, the real villian here, the one that never seems to get the blame is our very own Federal Government. You see, the federal government for 30 plus years has put road blocks in the way of the system being able to expand, meanwhile, demand has outpaced the system and because of this, speculators are betting that prices will go up and they lock in contracts with oil at higher prices and sell them later at a profit. The speculators are doing what they have done for decades, nothing new.
If you want to lower the cost of oil, you drill for more and you increase refining capacity by lifting the roadblocks that have been in place for all these years. It's as simple as that.
Little know fact: The United States currently imports about 13 percent of it's gasoline because it doe not have the capacity to do it here.

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Artie Lange "I don't know if $4 gas is over, but I hope not. The response to the price increase has shown that the only way we will ever break America's addiction to foreign oil is through escalating prices. I love cars; I obviously wouldn't read this blog if I didn't. But the vast majority of people should not be driving automobiles that run on gasoline."

I understand why you would like to see prices remain at $4 per gallon or higher, but have you looked out your window recently and seen how gas prices are affecting the normal consumer? The avg. American CAN'T afford these prices. What we need is a steady improvement in fuel mileage with affordable alternatives. Changing immediately or keeping prices where they are at currently is extremely short sighted. The technology may be there to change now, but it isnt affordable or available for the common man. People are losing their houses and all thats dear to them because they were unprepared for what has happened. Thinking that this problem is a short term problem is not looking at the big picture ACROSS the WHOLE country. I agree that we need to get away from our dependancy on foriegn oil, but we can't quit cold turkey. Its not economically feasible.

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"People are losing their houses and all thats dear to them because they were unprepared for what has happened."

In most cases, that's entirely their own doing. They refused to live inside their means, they refused to open their eyes and see what was happening with gas prices and the economy, and now they're paying for it. As far as I'm concerned, most of them are getting exactly what they deserve. If that group of people hadn't been so stupidly irresponsible, a portion of the mess we're in now could have been avoided in its entirety.

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Actually, I see visible changes already in my city. There is noticeably less cars driving on the weekends. Malls on the weekends are less than half what it was a few years ago.

I can actaully find parking around the city. Yeehoo.

So, I'm actually hoping for $10/gallon of gas. Any car nut would, for it would mean much less cars on the road, and a lot more enjoyable driving.

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Geeky1- You are obviously not looking at the big picture. To want people to fail, and "get what they deserve" is not looking at the big picture. Where I live a good income starts at about $11- $15 dollars an hour. Most people commute at least 25 miles one way to work to find employment. They live that far away so they can afford housing. So how does driving a 1997 Saturn SL with 250,000 miles and living in a singlewide trailer thats paid for, "living beyond their means?" It isnt, in fact most of these people are very good at conserving. But for you to suggest their failure is appropriate is ridiculous and self centered. Just because you can afford gas prices skyrocketing doesnt mean the average american can.

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