Speculating on oil
The price of gasoline has risen 12 cents in the last week.
And there’s more to come.
In just the last month alone, the price of what’s called benchmark crude has risen 15% to just over $108 a barrel.
Meanwhile, stockpiles of oil have been going down.
But many analysts say, the normal forces of supply and demand don’t account for this level of pricing.
“Oil prices and gas prices are as much about the ‘what if.’ It’s about what could happen. It’s a commodity,” says Jeff Lenard of the National Association of Convenience Stores.
That’s because, supplies are on a par with the average for the last 5 years.
And demand is down. So what’s going on?
In one word, speculation.
“And when there’s uncertainty, commodities increase in value,” Lenard said. “When there’s uncertainty in the stock market, prices go down because they’re not sure about the company. When there’s uncertainty about the commodity, prices go up and that’s what we’re seeing now, largely because of Egypt.”
Wall Street hedge fund speculators now own more oil than is sitting in the giant terminals in Oklahoma.
“Classic example is what happened 5 years ago,” says Lenard. “We had gas run up to $4.11 a gallon in mid-July. People were talking about $5 gas, $6 gas. It ended the year at$1.61. it dropped by $2.50.”
And any hint of Middle East unrest is enough to trigger a spike in price…justified or not.