Amid rapidly rising gas prices, President Obama has asked the U.S. Department of Justice to investigate whether Wall Street speculators could be manipulating oil markets, according to reports.
The price you pay at the pump isn’t only determined by demand or what your gas station decides to charge: Wall Street plays some role in how much consumers ultimately pay.
Investment bankers make bets on oil futures, which are contracts between buyers and sellers where the buyer is speculating on whether the price of a barrel of crude oil is going to rise. The buyer receives the barrel at a fixed price.
Massive oil storage facilities cater exclusively to investment banks, which purchase the oil at the price established in the futures contract. If the price of oil rises, the bankers can make a quick and handsome profit.
In this artificial market, world events such as the recent turmoil in the Middle East affect the average price of a barrel of crude oil.
This practice has drawn the scorn of businesses, consumer advocates, politicians, and unions alike. Critics claim that bankers are making a quick profit at the expense of national interests.
Interest groups like S.O.S. Now have formed to oppose crude oil speculation. S.O.S. was formed by an unlikely collation of the aforementioned groups, which don’t normally see eye to eye.
President Obama’s interests lie — at least in part — in getting himself reelected. A Gallup poll from late last month found that Americans are increasingly uneasy about the state of the economy despite falling unemployment numbers and record corporate profits.
It is very likely that gas prices are a major factor in the public’s economic assessment. The average price of gas has risen 30 cents just to US$112 within the past month and nearly a dollar over the past year. Obama has given the issue of oil speculation this full attention.
“We are going to make sure that no one is taking advantage of the American people for their own short-term gain,” Obama said at a rally in Reno, NV. today. Attorney General Eric Holder gave the President’s actions cold water.
“Based upon our work and research to date, it is evident that there are regional differences in gasoline prices, as well as differences in the statutory and other legal tools at the government’s disposal,” Holder said in a memo, the AP reports.
“It is also clear that there are lawful reasons for increases in gas prices, given supply and demand. Nonetheless, where consumers are harmed by unlawful conduct that has the effect of increasing gas prices, state and federal authorities will take swift action.”