Speculation drives fuels prices up
Motorists are suffering as fuel prices rocket, but is it fair to cut taxes on fuel at the expense of the general tax payer – and is fuel duty the real problem?
There have been plenty of stories circulating about the impact of speculation on oil prices over the last few years but these have often been dismissed as “liberal paranoia” by the industry and markets. It's not quite so easy to dismiss claims about speculation when they are made by Forbes Magazine, publishers of the “US Rich List” and one of America's leading business magazines.
Respected Forbes staff reporter Robert Lenzer, who's CV includes Wall Street reporter for the “Economist” reports that speculation in crude oil is currently adding over almost £15 to the cost of a barrel of oil. The Forbes prices are in dollars per US gallon – This translates to about 9p a litre ($.56 a US gallon which is 3.78 litres!), if my arithmetic is correct, according to Forbe's figures, speculation is costing British motorists 45 pence a gallon.
It seems almost unbelievable that speculators can accumulate so much of a commodity that is so widely traded in such huge quantities but according to Lenzer, there are 233 million barrels of oil being held in the New York futures markets - enough to supply western Europe for a year! The video below is an interview with US Senator Bernie Sanders talking about speculation, Wall Street secrecy, and Wall Street's campaign to avoid the legislation Congress passed to try and regulate speculation.
Despite what Sanders says, of course supply and demand is a huge factor in oil prices. There's a really good, simple account of all the factors that influence the price of oil in the American blog “Treehugger” (remember “gas” is Petrol in the USA – I fall for it every time!) - but in a complex market, speculation is a key factor in the price we pay for fuel.
It's fair to ask - “what does this have to do with sustainability”? - but here's the rub. A lot of the key players in speculation are the same people who are using high oil prices to justify a call for more drilling, construction of projects like Keystone XL tar sands pipeline and tax breaks for big oil.
Some, have spent fortunes – mega-conglomerate Koch are known to have spent at least $100 million on lobbying, funding of front organisations, and other donations to influence laws and regulations. Part of that budget has gone to funding climate change denial front organisations and anti-renewable campaigns.
Last year they lobbied to stop regulations demanding transparency in the highly secretive energy trading market. At the same time Koch are one of the corporations who profit most from speculation. Fortune Magazine reported that they leased at least one 2 million barrel capacity supertanker to create additional storage capacity during the 2008 crisis.
They also stand to gain a big share of the $15 trillion dollar revenue the keystone pipeline would generate – it's being pushed hard as a way of cutting fuel costs on the USA but now Bloomberg finance report that the true effect of Keystone could well be to increase fuel prices.
The only real solution to rising fossil fuel prices is investment for a renewable infrastructure – that means a far more energy efficient world, low carbon renewable energy, and a gradual reduction in demand for fossil fuels. Hardly surprising that the corporate forces wealthy enough to manipulate world energy markets are investing fortunes to stop legislation to bring them to heel. What's really tragic is that these same corporations are targeting environmental legislation, renewables, and the credibility of serious science in a reckless attempt to undermine any thought of a sustainable future.
There's no real short term solution to the high cost of fuel, though regulating the speculators might help a little, but not allowing the voice of "big oil" to thwart the push for a low carbon economy is one thing we can do to ensure a more stable energy future.