ExxonMobil CEO Rex Tillerson told the Senate Finance Committee that based on supply and demand “fundamentals,” the price of a barrel of oil should be around $60 to $70 a barrel. How should Tillerson know this? The large domestic oil companies represent a sliver of world production and reserves. ExxonMobil is very good at spending money to support climate-change “deniers.” Understanding the fundamentals of supply and demand, apparently not so much.
But Tillerson and other CEOs are acting their part in the play. Righteous lawmakers search out the culprits for rising gasoline prices. Seventeen senators, including Washington’s Maria Cantwell and Patty Murray, signed a letter to regulators blaming speculators for the phenomenon. It reads in part, “While there has been little change in the world’s oil supply and demand balance since 2008, oil prices have jumped around from $147 per barrel, to $31, to $86, to around $104 today.” It was around $97 a barrel this morning, but you get the idea.
The price rise can’t possibly have anything to do with strongly rising demand in the developing world, including China, which is leading the world economic recovery even if its being felt tepidly at home. And the ceiling hit in world production in the mid-2000s, with many of the biggest fields in decline and major oil producing countries, including Saudi Arabia, holding back more oil for domestic use? That couldn’t have much of a role, either, could it? “Little change” despite the collapse in demand caused by the Great Recession?
Yet too many officials refuse to tell the American people the truth about a higher-cost energy future. So they need speculators as the enemy. Oil prices will go up and down, and speculators, who properly regulated are necessary for a functioning marker, play some role. But not the decisive one. Still, what’s reality compared with what the American people expect: Cheap gas forever.
If the senators believe that with $4-a -gallon gasoline, “we have entered a time of economic emergency for many American families,” just wait. Too bad the Congress is doing little to help states with transit, light-rail and conventional passenger rail, much less high-speed rail. It’s so much easier to blame speculators. In oil futures, at least. Somehow the really dangerous playerz, the TBTF banks, shadow banking system and their derivative bombs, get off. Move along. Nothing to see here.
Addendum: Yes, I agree with the commenters about the effects of QE2 from the Fed. This had a distortive effect many places, including the stock market and commodity speculation.
Today’s Econ Haiku:
Then deregulate the banks
Well done, Bill (not Gates)