Oil prices drop with speculators

While Baron Hill’s anti-oil speculation bill has stalled in the halls of the Senate, the price of gasoline has recorded the largest-ever two-week drop.

From Sept. 28 to Oct. 10, the price has dropped from $3.66 a gallon to $3.31.

The drop in price this summer, 80 cents a gallon since its peak on July 11, shows the energy markets are healthy and responsive to supply and demand.

Moreover, the oil futures market was not responsible for the rise in gas prices earlier this summer as Hill asserts. It was simply responding to supply and demand.

The demand for oil has increased dramatically over the past five years, by an average of 8.2 million barrels per day, nearly twice the increase of the five years preceding these past five, according to Cambridge Energy Research Associates Energy Chairman Daniel Yergin.

However, the high prices coupled with environmental concerns and a weakening global economy, have now decreased the demand for gas.

The price of oil responded by falling $70 a barrel since July 11.

Baron Hill said the anti-speculator legislation that he supports, the Commodity Markets bill, would decrease the price of oil by up to $50 a barrel, citing economists he met with, including the University of Maryland’s Michael Greenberger.

Having already surpassed that decrease, it is hard to believe the bill would make much of a difference if it were to pass the Senate and become law.

The Indiana Daily Student wrote an editorial on Sept. 24 explaining our view, and Hill responded with a letter to the editor. So I called his office to discuss the topic.

Speaking with Hill’s communications director, Katie Moreau, I defended the IDS’s conclusion.

Moreau asked, “If the price of oil is the same price that it was last year, and the price of gas is higher, why is there that differential?”

Well, it would certainly have nothing to do with speculators.

Speculators make their money trading oil futures, so their income is tied directly to the price of oil, not the price of gas.

They have no means or motive to increase the price of gas.

I replied that oil prices have a tendency to change more quickly and by larger margins than do gas prices.

From October 2007 to July 2008, oil prices rose by 81 percent, but gas prices only rose by 48 percent, so they should not be expected to fall at the same rates.

The irony of it all is that Hill voted in 2000 to enact the “Enron loophole,” the same loophole he now decries for contributing to the rise in gas prices. The bill, HR 4577, included provisions that allowed speculators to trade on electronic exchange systems unregulated.

When pressed on it, Katie Moreau, said, “That says a lot about a leader if you can say, ‘Look, this is something that is causing a problem, and we need to fix it.’”

Fixing a problem that he had a role in causing? Noble. But neither the problem nor the solution is as important as Hill would have you think.