It’s Speculation Stupid!

Implications: For a party that gets it wrong on trade, on taxes, on unions and often on foreign policy, the Democrats current finger pointing at speculation goes to show that even a blind duck finds water every once in awhile.

Analysis:  In a statement issued by the New York Mercantile Exchange (Nymex), it stated “that increasing crude oil margins on futures markets regulated by the CFTC would force trading volume away from regulated and transparent US exchanges onto dark unregulated venues and onto less transparent overseas markets.”  I have news for them, traders have already moved to the unregulated OTC transaction.

No one disagrees with the fact that there are several issues driving the increase in the price of oil; however, OPEC and others have it correct when they say that speculation is by far the disproportionate piece of the puzzle. And as much as it hurts my heart to say, the Democrats have it right.

With that said, I am concerned that the Democrats will do nothing other than pass a bunch of new laws, starting with the Consumer-First Energy Act of 2008, a bill that claims to address the root causes of high gasoline prices, instead of simply enforcing what laws are on the books. Instead of “striking while the iron is hot” by challenging the Commodity Futures Trading Commission (CFTC) and then blaming it on President Bush, which is a common tactic, the Democrats and all of Congress will continue to posture for the next election, argue, attempt to score political points, remain deadlocked and end up not doing a damn thing.

In the meantime when the consumer, along with complete industries and sectors like trucking and transportation are out gunned by commodity traders and the power of their “billions”, the price of oil, albeit a soft commodity, will continue to be artificially inflated at the rate of possibly 30% to 60%, or between $37.50 and $75.00 per barrel.

Want to know what that does to the consumer and trucking? Price increases in gasoline and diesel typically follow increases in the price of oil by about two weeks. Take the price of oil and divide by 42 (42 gallons per barrel). Add approximately 12% for transportation and margin plus about $.25 per gallon for taxes and it gives you a rough idea (not exact, but close) of what continued increases, whether fundamental or artificial actually cost the consumer. (Refinery cost and low sulfur fuel requirements generally create the difference between diesel and gasoline)