Gas!

No, not that kind of gas, but the type that you burn. I don’t know about you, but each time I fill up my tank, it is like I’m buying “Futures”. Each day the price of the gas keeps going up, the twenty dollars of gas that I put in my tank on Monday is now worth twenty-one dollars on Tuesday. And that is what is driving the price of gas, Future Trading. Futures are a kind of gamble; you say that I will buy one hundred gallons in 90 days at today’s prices. So if the price goes up, you win and conversely if the price goes down, you lose. (Way back in the late 70s, where I worked, I was friends with an administrative assistant who traded in Futures. When she was explaining to me about how the Futures market work, she told me of a story about one of her trades. There was a cold front moving through Florida and she thought that there would be a deep freeze that would kill the oranges trees, so she took out a Futures contract to buy several tons of oranges in 90 day at today’s price. Well the freeze never came and the price dropped and in 90 days her broker called, wanting to know where to deliver several box cars of oranges. Unlike stocks, when you buy commodities, you own them whether it is pork bellies or oil.). So back to oil, right now the Future markets are driving the price up. They are betting that Iran will shut down the Strait of Hormuz and stopping the flow of 1/3 of the world oil supply. An article on Fox Business talks about this, “Dems target Wall Street speculators over rising gas prices” on March 10, 2012,

Investors like hedge funds are big players in the oil markets, bidding on futures contracts and potentially affecting the price of oil. How big of an impact those speculators have, and whether they actually serve a constructive purpose, is a matter of fierce debate.

Bart Chilton, a commissioner on the CFTC, told Fox Business Network that speculation alone adds an average of 56 cents to a gallon of gasoline. He estimated that's an extra $7 every time a driver fills up a Honda Civic.

Of course the Republicans don’t believe it and they are sticking to their mantra, “Drill baby drill”. The article goes on to say,

Investors claim that Wall Street has been made into a scapegoat, and that basic supply-and-demand forces are at work in rising energy prices.

"Trade is not to blame for this," investor and former actor Wayne Rogers told Fox News on Saturday. He added that the Democrats complaining about speculators are the same ones who speak out against the Canada-to-Texas Keystone pipeline, claiming that project would help relieve part of the problem.

Hmm… let’s see. Supply is up and demand is down… wouldn’t that indicate that the price should drop?

Graphs from Obama for President.

Graph from U.S. Energy Information Administration


They also claim that the price is going up because of the President cancelling the current path of the Keystone pipeline. Note I said the “current path” there are other alternative paths for the pipeline that does not take it right through the Ogallala Aquifer one of the world’s largest aquifers (Map, Wikipedia).

There are other alternatives that would go around the aquifer.

Keystone Pipeline Shouldn’t Risk Nebraska Water, Obama Says
Bloomberg Businessweek
By Jim Efstathiou Jr.
November 07, 2011

Obama commented on the $7 billion project that would carry oil from Alberta to the U.S. Gulf Coast in an interview with an Omaha television station yesterday, as Nebraska’s state legislature opened a special session considering ways to force a rerouting of the pipeline away from the state’s largest aquifer.
[…]
The 1,661-mile (2,673-kilometer) Keystone XL would deliver 700,000 barrels a day of crude to refineries on the Gulf of Mexico through Montana, South Dakota, Nebraska, Kansas, Oklahoma and Texas. State leaders haven’t opposed the project’s route except in Nebraska.
[…]
The pipeline would cross the Sandhills region of the Ogallala aquifer, which serves 1.5 million people. The area has a shallow water table and porous sand that make it susceptible to water contamination, according to John Gates, assistant professor of earth and atmospheric sciences at the University of Nebraska in Lincoln.

The state legislature’s session was called by Republican Governor Dave Heineman especially to consider legislation aimed at forcing Calgary-based TransCanada to move Keystone XL. State Senator Annette Dubas introduced a bill that would require state permits for pipelines, giving Nebraskans a voice in the approval process.

So it is not just the President but also the Republican governor of Nebraska where most of the aquifer lies. There are a number of alternate routes proposed, KLIN reports that.

Major Route Alternatives
The analysis of route alternatives considered 14 major route alternatives. Figure ES-8 depicts the alternative routes considered. The analysis of alternatives routes was conducted following the approach to assessments of alternative pipeline routes used by the Federal Energy Regulatory Commission. As a result, the analysis began with a screening process that first established criteria for screening alternatives, then identified potential alternatives that met the criteria, and determined whether or not they would (1) meet the purpose of and need for the proposed Project, and (2) be technically and economically practicable or feasible. For those alternatives meeting the criteria, DOS assessed whether or not the alternative offered an overall environmental advantage over the proposed route.
Map is from The Proposed Alternate Pipeline Routes From The Final Environmental Impact Report

As for the Republican’s claim that the price of is going up because of the rejection of the current route, a blog post on “The Hill”, Bill McKibben wrote,

This is nonsense on many fronts, most of all because the price is oil is fundamentally set on global markets. As the Congressional Research Service pointed out in late January, when there’s trouble in places like the Straits of Hormuz, the price of oil goes up for everyone and Keystone will make no difference, since the oil market is “globally integrated’; it’s not like Exxon offers a home-country discount to American motorists.

But in the case of the Keystone pipeline, it turns out there’s a special twist. At the moment, there’s an oversupply of tarsands crude in the Midwest, which has depressed gas prices there. If the pipeline gets built so that crude can easily be sent overseas, that excess will immediately disappear and gas prices for 15 states across the middle of the country will suddenly rise. Says who? Says the companies trying to build the thing. Transcanada Pipeline’s rationale for investors, and their testimony to Canadian officials, included precisely this point: removing the “oversupply’ and the resulting “price discount” would raise their returns by $2 to $4 billion a year.

So what to do? Do we limit the Futures market? Do we drill more like the Republicans will answer all our needs? Do we have a broad energy based policies that develop alternative energy sources and promote fuel efficient cars? I don’t think limiting the Futures market is the answer, but taxing the billionaires and millionaires is one of the answers and the other is cut demand by developing alternative energy sources.