Now here’s a volatile combination: Gasoline prices on the rise … in an election year… amid aggressive market speculation.
Energy analysts expect the price at the pump to soar in the months leading up to the summer driving season. And if prices shoot higher, quick as you can say “gas-tax holiday,” “strategic petroleum reserve” or “evil speculator,” the nation’s elected officials will be tempted to force prices down ahead of Nov. 6.
They need to resist the temptation. The high price of gas is not a problem that needs to be fixed, except over the long haul with a sensible energy policy. Disrupting a smoothly functioning marketplace would do more harm than good. In fact, the commodity market already is starting to prove the trader’s adage: Nothing cures high prices like high prices.
Every American who drives a car knows that terrible feeling when the digits on the pump keep going higher and higher during a fill-up. $50? $60? $70? Make it stop!
The closer gasoline gets to $4 a gallon, or especially $5, the bigger the shock.
That shock serves an important economic purpose. It encourages consumers to change their behavior. And sure enough, even with the economy showing signs of a sustainable recovery, Americans are finding ways to use gas more judiciously.
One analyst calls the phenomenon, “oil-price fatigue.” Americans spent a record $481 billion on fuel last year — more than $4,000 per household — and they didn’t like it one bit.
Demand for motor fuel in the U.S. is surprisingly weak, despite favorable weather for travel across much of the country and a slowly improving job market. In the seven days ended Feb. 10, demand clocked in at 5.4 percent below year-ago levels.
An analysis of MasterCard receipts by oil-industry researcher Tom Kloza suggests that consumers are making fewer trips and patronizing big-box stores where shopping can be done all at once, as opposed to making special trips to quick-stop convenience stores.
If demand is down, why aren’t prices? Here’s where speculators play their role. Hedge fund managers and other commodity traders are betting heavily on higher prices during the spring and summer. They’re banking mostly on strong growth in Asia, South America and other developing regions. They’re also counting on the fear factor: Military action aimed at deterringIran’snuclear program would send oil prices soaring. It’s easy to imagine other geopolitical shocks that could have the same effect.
Around Chicago, believe it or not, the immediate outlook for gasoline prices is a little better than in most parts of the country. The Chicago area typically has some of the highest pump prices in the U.S. because of steep taxes and summertime clean-air standards. This year, Chicago is awash in oil from Canada and the Bakken formation of the northern Great Plains. North Dakota is on track to surpass Alaska in oil production. Less is shipped south by barge to Gulf refineries during the winter. So abundant local supplies have given Chicago-area consumers some relief from the prices they otherwise would be paying.
That’s likely to change as the refineries reformulate gasoline for the summertime standards, and the marketplace directs additional crude oil to locations where relative shortages push prices higher.
Yes, gasoline prices probably will rise in the weeks ahead. And, yes, higher fuel prices weigh against the nascent economic recovery.
But, no, you can’t blame it all on the speculators. And, no, the Keystone XL oil pipeline that President Barack Obama unwisely blocked over Republican objections has nothing to do with the price of gasoline in 2012.
Be patient. Government needs to resist the impulse to overreact. Drivers need to keep finding ways to conserve. Those steps always make a positive difference, no matter what the price of gas.
