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Speculators behind latest surge in gas prices

Gas prices are soaring on the West Coast, as evidenced above at a station in San Francisco, but they’ve also jumped in Florida. The trend threatens to put a damper on holiday shopping and impede economic growth.

Associated Press

Gas prices are soaring on the West Coast, as evidenced above at a station in San Francisco, but they’ve also jumped in Florida. The trend threatens to put a damper on holiday shopping and impede economic growth.

WASHINGTON — Despite weak demand in the United States and Europe, oil prices climbed this week to nearly $90 a barrel, and gasoline prices have passed $3 a gallon on the West Coast and parts of the Northeast, with Florida not far behind.

Why? If demand is down and supplies are plentiful — and they are — why would prices be going up?

Because Wall Street speculators are driving up oil and gasoline prices again, just in time to dampen holiday cheer.

"It's all about investor optimism, and that's been the story about 2010. … That's the primary reason why we're seeing oil prices at $90 (a barrel) and gasoline making an uncharacteristic climb in December toward $3 a gallon," said Troy Green, a national spokesman for the AAA Motor Club.

AAA's Fuel Gauge Report shows the nationwide average for a gallon of regular unleaded gasoline stood Wednesday at $2.968. That's up 11 cents a gallon from a month ago and 33 cents a gallon from a year ago. In Florida, the average price of a gallon of regular unleaded Thursday was $2.992, up from $2.834 a month ago. In the bay area, the price was $2.94 on Thursday, up from $2.775 a month ago.

It's even worse on the West Coast, where average prices this week exceeded $3.15 a gallon, according to Energy Department data.

If oil prices keep climbing beyond $100 per barrel, as Goldman Sachs projects for 2011, higher fuel prices may blunt efforts by the Obama administration and the Federal Reserve to stimulate the weak economy.

"I think we're at that point. With (nearly) 10 percent unemployment, it's a much more impoverished consumer that can't afford it. It's almost a bludgeoning instrument in terms of what it will do to consumer sentiment," said John Kilduff, a veteran energy analyst and partner in the hedge fund Again Capital. "What might have been a very bright shopping season could get the wind taken out of its sails by these high prices."

Rising prices could erase the stimulus coming from the 2-percentage-point reduction in payroll taxes proposed this week by President Barack Obama and Republican congressional leaders. This would hit the working poor particularly hard.

"The money they get from government tax relief, they'll have to go pay in higher prices for food and energy," said Michael Masters, head of Masters Capital Management and a frequent witness before Congress about financial speculation in oil contracts.

The U.S. Energy Information Administration, the statistical arm of the Energy Department, said Wednesday that there is, in fact, increasing demand for oil compared with last year's low demand amid the recession.

But supplies are abundant, it said in its weekly report, This Week in Petroleum — especially when compared with a few years ago.

Speculators behind latest surge in gas prices 12/09/10 [Last modified: Monday, November 7, 2011 1:39pm]
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