Are oil speculators the cause of sky-high gas prices?
U.S. Senators must think that market speculators are the reason why gasoline prices have skyrocketed in recent months. They voted 94-0 on Tuesday to move ahead on legislation to curb speculation in oil markets. Few expect anything to come of it.
The Senate bill would require the Commodity Futures Trading Commission to set limits on trading in oil markets by investors and speculators and close a loophole that allows speculators trading on the London oil market to escape scrutiny by U.S. regulators.
But the majority say the bill will only end with both parties blaming each other for not doing enough to combat this summer’s $4-a-gallon-plus gasoline prices.
House Speaker Nancy Pelosi, D-Calif., says in the story that she won’t let the House or any of its committees or subcommittees allow a vote on offshore drilling. She and other Democrats say the oil companies should first look to areas offshore and in Alaska where drilling is already allowed.
But despite another round of huge quarterly profits, giant oil companies such as Exxon Mobil and ConocoPhillips insist they’re trying to find new oil that might help bring down gas prices, but the money they spend on exploration is nothing compared with what they spend on stock buybacks and dividends.
But that’s not true, according to a report by Rice University’s James A. Baker III Institute for Public Policy.
The report says that the five biggest international oil companies plowed about 55% of the cash they made from their businesses into stock buybacks and dividends last year, up from 30% in 2000 and just 1% in 1993. The amount the companies spend to find new deposits of fossil fuels has remained flat for years, in the mid-single digits.
Are oil market speculators really the cause of our high fuel prices? Or should we be forcing big oil companies to use larger portions of their huge profits to find new sources energy, be it oil, solar, nuclear or wind power – or something else?
They better hurry up and pass this…otherwise they won’t be able to claim credit for the fall in oil prices we’re seeing right now.
The bill won’t really do anything–speculation will still be legal in London. Their supposed oversight of groups that trade there isn’t meaningful enough to curb the market’s ability to set a price for oil.
Not that it really will do much anyway. Prices go up and down over the long term because of fundamentals. Speculation doesn’t change the fact that it’s becoming harder and more expensive to meet the world’s demand for oil.
If oil were really $50 higher than it should be, every speculator in America would be betting against oil. The price of oil is high because of supply and demand (and perceived worries about it).
If big oil companies really thought it was worth it to invest in finding more oil, wind power, etc. they would do so. They’re spending billions to find new sources of oil and gas when they have the right opportunities.
Companies pay dividends and buy stock back because they don’t have the ability to spend that cash on profitable investments. The massive growth in payouts to shareholders is a symptom of big oil’s biggest problem–Exxon, Chevron, et al have a lot of trouble accessing new oil fields. Many of the places they’re allowed to drill for new oil are in rough terrain (such as under thousands of feet of water) or in places where the government isn’t exactly shareholder friendly (like Russia).
The profit margin on a gallon of gasoline is the same as the margin on a bottle of Budweiser. Their profits come from scale, not pricing power.