Gasoline prices continue to surge, and the increases are expected to continue.  Gasoline prices roared to as much as $6.00 a gallon in California recently, an all-time high.  The national average is about $3.79 a gallon, the highest ever.  Some say refinery and transmission problems are to blame. The situation is only compounded by a federal pollution law that requires a higher priced special blend of cleaner-burning gasoline to be used from April to October.

The price of diesel fuel has also increased, adding significant costs for truckers.  An independent trucker recently claimed if fuel gets to $5 per gallon, he will probably stop driving because he’d lose money.  “With that kind of price, I won’t be able to support my family.” He said.

The next time you drive to the gas station, only to find prices are still high, take notice of the foreclosed homes you passed along the way. They may seem unrelated, but high gas prices and home foreclosures are actually very much interrelated.  Before most people were aware there was an economic crisis, investment managers abandoned failing mortgage-backed securities and looked for other lucrative investments. What they settled on was oil futures.

An oil future is a contract between a buyer and seller where the buyer agrees to purchase the commodity at a fixed price. Futures offer a way for a purchaser to bet on whether a commodity will increase in price down the road.

Wall Street flocked to futures in the 19th and 20th centuries and bet on grain.  In the 21st century it was oil.  The laws of supply and demand don’t apply in oil markets.  Instead, an artificial market has evolved.  Artificial markets are volatile, difficult to predict, and can turn on a dime.

Many market watchers believe the rise in oil prices is due to such speculation on oil.  What speculators do is bet on what price a commodity will reach by a future date.  Speculators with the capital to purchase a sizeable number of futures at one price can actually sway the market.  Speculators trade on rumor, not fact.  A speculator purchasing vast futures at higher than the current market price can cause oil producers to horde their commodity in the hopes they’ll be able to sell it later at the future price. That drives prices up, both currently and in the future, due to the decreased amount of oil available.

Investment firms can also influence the oil futures market and stand to make a lot of money; oil companies that both produce the commodity and drive the price of their product up through oil futures stand to make even more money.  As a result of speculation among those major players, an estimated 60% of the price of a barrel of oil is added; a $100 barrel of oil should cost $40.

In the United States, oil futures come in three major forms: contracts on crude oil, gasoline and heating oil.  All three of those commodities are essential for the nation to operate and thrive.

The Commodity Futures Trading Commission (CFTC) was established by Congress in 1974 specifically to prevent speculation from artificially inflating the price of commodities, but over time its powers have been stripped.  It has been unable to stop manipulation of the market for the energy on which we’re painfully dependent.

In response to calls for better regulation of oil futures, Congress introduced the Consumer-First Energy Act in May 2008, but the act died on the Senate floor the following June.  After the bill was defeated, the argument over oil speculation changed.  No longer was the debate over what caused oil prices to rise, but how long the United States would allow speculation to continue.

Fuel is like no other commodity in the United States.  The price of a gallon of gas at a station can change as much as three or four times during the course of a single day.  That creates a rippling volatility throughout the entire economy.  Because fuel costs literally affect the bottom line of everything in America.

Well … it’s high time Congress pass a law putting an end to speculation on oil.

Many an American is saying: “It’s killing us!”

Greg Allen’s column, Thinkin’ Out Loud, was published bi-monthly from 2009 to 2017.  He’s an author, a former nationally syndicated columnist and the founder of Builder of the Spirit Ministries in Jamestown, Indiana.  He can be reached at www.builderofthespirit.org.

© Greg Allen ~ All Rights Reserved