Did oil speculators drive up the cost of gasoline?

Remember the horrible old days when gasoline was more than $4 a gallon? You know, like two weeks ago?

Being good citizens of the United States, we are driven genetically to find somebody to blame for the fact that oil was trading near $147 a barrel — somebody, that is, beyond the usual suspects: President Bush, Vice President Cheney, Speaker Nancy Pelosi, Senate President Harry Reid, Fed chairman Ben Bernanke, both houses of Congress, the International Monetary Fund, the Trilateral Commission, Nancy Grace and So You Think You Can Dance.

We could blame Big Oil. After all, Exxon Mobil just posted the largest single quarterly profit in the history of printed money, more than $11 billion. But why should we hate them for that? We are a capitalist society. Making money is a good thing. Right?

We could blame the greedy OPEC nations, who all hate us anyway because we are free and have a really cool Constitution and watch just about any form of perversity we want on our cable televisions. But the oil-producing cartel is actually pumping 4 million barrels a day more than they were one year ago, increasing the supply and, theoretically, holding prices down.

We could blame the Chinese, whose demand for oil appears to rival Pamela Anderson's demand for quality rock-and-roll schlong. Or the Indians. Or Brazilians. Or any other of a host of nations who are also rapidly industrializing and getting addicted to oil, too.

But we blame the evil oil speculators. It makes a better story arc.

Here's how oil speculating works: You go out shooting for some food, when up from the ground comes a bubblin' crude. Wait, that's how oil production works. Oil speculators, on the other hand, trade on the futures market, betting that the crude won't come a-bubblin' up in time to meet increased demand, and that the price of oil will rise.

Who wouldn't make that bet? Like the Chinese are going to shut down their economy in the near future? (Except for the three weeks that the Olympics are in town in a futile attempt to rid Beijing of some of its crippling smog.)

Trading in oil futures is a cool deal: Speculators can control a whole lotta oil with relatively little money. What they really buy is a contract to take delivery of a barrel of oil at a future date. If the price of oil rises between the time the contract is purchased and that future date, the contract is worth more and the oil speculator makes a killing and gets a new Maybach and a smokin'-hot model girlfriend.

Does that mean that cash-strapped gasoline consumers, on the other hand, get screwed as a result? Not quite. You see, for every investor who makes money when oil prices rise there is another commodities trader who loses money. It is a zero-sum game at the old mercantile exchange. Some people are betting oil prices will rise; others are "shorting" the contracts, betting the price of oil will fall. And there is no way all the oil commodities traders all over the world can get together on one big conference call and conspire to drive up the price of oil.

Likewise, the idea of cracking down on oil speculators or slowing their little betting game is bad on a couple of levels. First, there are many legit companies — airlines and shipping companies, to name two — who buy oil futures contracts so they can plan on what their fuel costs will be in a year or two. Second, throttling oil futures trading by requiring speculators to put down more cash for the contracts wouldn't work because the traders would simply conduct their business at another global commodities exchange. (Yes, there's that nasty gremlin globalization popping up again!)

No, we are the real culprits in the oil market. Oil futures traders may have pushed prices up a little faster than the market really called for, but we created the demand, which is rising at a worldwide rate that threatens to outstrip our ability to supply oil. The law of supply and demand is the one you can't break, as the markets are already starting to show. With the U.S. economy slowing and all of us cutting back on gasoline purchases, the oil bubble is beginning to burst. Barrels are now trading around $123. OPEC President Chakib Khelil told Reuters recently that he sees the possibility that prices could fall as low as $70 or $80 a barrel.

Start getting the H2 out of mothballs!

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