WASHINGTON Theyre baaaacccck. Like locusts ravaging fertile crops, gasoline prices are soaring again and eating away at the purchasing power of ordinary Americans. And again, financial speculators appear to be a big part of the story.
The national average pump price hit $3.74 for a gallon of unleaded gasoline Tuesday, up a sharp 44 cents per gallon from just a month ago, according to the AAA Motor Clubs Fuel Gauge Report.
Gas prices in the Charlotte metro area jumped 34 cents in the last month, from $3.36 a month ago to $3.70, according to AAA Carolinas.
Its the 33rd day in a row that weve seen a consecutive increase in gasoline prices, said Nancy White, a spokeswoman for AAA, who said there are several explanations but none seem overly convincing.
More than a passing pain, rising gasoline prices act like a tax on consumers, harming the economy by whittling away the amount of money consumers can spend on other things.
Gasoline expenditures as a percentage of U.S. household income hit three-decade highs in 2012, and the recent spike suggests 2013 might not be much better.
Its not all supply or demand.
The rising gasoline prices come even as the United States now produces more than half the oil it consumes. In fact, the nearly 800,000 barrel per day increase in U.S. production output from 2011 to 2012 reflected the largest one-year jump since oil drilling began in 1859.
The U.S. Energy Information Administration projects that U.S. oil production will rise from 6.89 million barrels per day in November 2012 to 8.15 million by December 2014. At the same time, the International Energy Agency has lowered its estimates for global demand for oil. Lacking demand, OPEC, the oil-exporters cartel, has reduced production.
It all argues for lower oil prices, or at least less volatility in the price of oil and thus gasoline.
Enter financial speculation. Commercial end-users of oil such as airlines and trucking companies who once dominated 70 percent of the market for future deliveries of oil now represent just 30 percent.
Noncommercial financial speculators now dominate 70 percent of the market. The trading is dominated by Wall Street banks, hedge funds and other financial institutions that have no intention to take delivery of the oil needed to make gasoline.
Its speculators who are moving markets, said Bart Chilton, a commissioner at the Commodity Futures Trading Commission. They are almost exclusively the entire market at certain periods of time.
Chilton led the charge in seeking limits that reduced how much of the market for crude oil any single trader or company could control. Armed with the 2010 revamp of financial regulation, the commission sought to establish hard limits, but that effort is now bogged down in the courts.
The more textured view would show you that at certain times it is not a question to whether or not speculators are moving the market. Speculators are the market, he said.
Other forces are at work as well. Nearly 1 million barrels a day of capacity has been turned off with eight refinery closures or announced closures on the U.S. East Coast and the Caribbean over the past year.
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