Politicians tab speculators as their oil bogeymen

Tom West - West Words
West Words by Tom West

The key to this fall’s election will be, as it usually is, prosperity — or the lack thereof. So it was, that the ECM Publishers Editorial Board sat down with state of Minnesota Economist Tom Stinson March 20 to get his take on the economy.

Stinson doesn’t smile much; even his jokes are told deadpan. Still, he speaks with an authority that most politicians don’t have.

Among other topics, he said some profoundly meaningful things about energy and what the price of oil will mean to all of us.

The global price of oil on Monday was about $105 per barrel. He expects that if the flow of Iranian oil to world markets is disrupted for any reason, the price could quickly rise to more than $150 per barrel. Any increase of more than $20 to $30 per barrel is a concern, he said, because a $1 increase in the price of a gallon of gasoline reduces discretionary consumer spending in the U.S. by about $100 billion.

The price of gasoline is hovering between $3.60 and $3.80 per gallon today. Five years ago, when it last approached $4 per gallon, the economy went into recession.

While more factors were involved in creating the recession than just gas prices, the price of energy didn’t help.

Today, Stinson believes the economy can continue to grow until the price of gasoline hits $4.50 to $4.70 per gallon, when it will begin to slow. And if, perish the thought, the price reaches $5 per gallon, “the economy will tank,” he said.

A few days after we met with Stinson, Minnesota’s two U.S. Sens. Amy Klobuchar and Al Franken signed on to a bill pandering to conspiracy theorists who believe the reason for the run-up in price is tied to “speculators.” The good senators think speculators have increased the price of gas by 56 cents per gallon. They want to rein them in.

One can find plenty of experts who agree with the senators, but Stinson isn’t one of them. He thinks speculation has almost no effect.

And if you think about it for longer than it takes to fill your tank, Stinson is probably correct. Even in energy futures, it takes a willing buyer and a willing seller. Speculators aren’t consumers; they simply believe they know the worth better than the seller. If speculators are willing to pay more for a futures contract, the run-up is probably because of some other factors, not just that many others are speculating on the future price of oil.

The biggest factor is that the Mideast is in ever greater turmoil. Perhaps Israel will attack Iran if Iran doesn’t set aside its nuclear ambitions. Iraq’s new democracy remains tentative at best, and the “Arab Spring” that swept over north Africa last year eliminated Libyan strongman Muammar Khadafy, but left mostly anarchy in his wake.

Meanwhile, the United States, the world’s only superpower, appears set on a course of reducing its overall influence in the Mideast.

And if that were not enough, China has been adding more than 9.5 million cars annually since 2006 and today has auto sales of more than 50,000 daily.

Some political “speculators” have accused the Obama administration of being in the control of environmentalists who want to reduce the use of oil by using regulations to push up the price.

In that political climate, does anyone have a policy idea that might actually reduce the global demand for oil? Wind and solar? That won’t scare off the speculators any time soon. Is it really any wonder that a speculator looking at the big picture would be willing to bet that oil prices will go up in the near future?

And what if speculators thought the price of oil was going to go down? Would that be a bad thing? Would they push the cost of oil down an “unwarranted” amount?

Politicians need to have their bogeymen to point at when their policies are painful to the voters.

With the weather we have had lately, it makes sense that we look for ways to reduce greenhouse gas emissions. If the thermometer hits 120 this summer or giant tornadoes and flash floods devastate the country more than ever before, we all could become radical environmentalists overnight. Under those circumstances, raising the price of gasoline would be worth the pain.

But after building a petroleum-based global economy for a century, let’s have no illusions that reducing our use of petroleum will be easy or that any quick fix exists — even Boone Pickens’ call to switch the nation’s vehicles over to natural gas.

The political will doesn’t exist for the United States to create policies that will unilaterally raise oil prices. Global warming is a global issue, but artificially pushing up U.S.  gasoline prices hurts only this nation’s economy.

The Republicans and the Democrats alike have said that creating  jobs should be the top priority this election. Well, if the price of gasoline goes up another $1 per gallon, that means  fewer candy bars will be bought at the convenience store, and the convenience store owner won’t be able to buy new furniture, and the furniture store owner won’t be able to pay the orthodontist for his kid’s braces, etc.

With the economy doing better, but still teetering on a high wire, it will need to get a lot hotter before any politician will put fossil fuel reduction ahead of creating jobs.

I knew speculators must have some redeeming social value, and this must be it — to play the bogeymen so the politicians can deflect attention away from the pols’ inability or unwillingness to do anything to bring down the price of oil.

Tom West is the editor and general manager of the Record. He may be reached at (320) 632-2345 or by e-mail at [email protected].