Thank the Wall Street speculators for high gas prices

My point is that gas will sell until it is no longer as valuable as its price.

 

Your point assumes there's a purely elastic market and people have an option. Gas is a utility. Nobody can skip work because gas has gone up 30 cents a gallon and they don't want to buy it anymore.

 

You're not disputing my point. My point is that gas is incredibly valuable.

 

Then how come demand is going down?

 

Well now we are in something of a circular argument -- how come the price is going up then when we are in a supply-and-demand free market and we have more supply and less demand?

 

The Volt

 

The answer would seem to be that either supply isn't really going up or demand isn't really going down.

 

Or, that there's plenty of suppy to meet the demand, but that the price is being artificially manipulated, as claimed by a wide assortment of disinterested industry watchdogs, government officials from the US and Saudi Arabia, government agencies, and consumer protection groups.

 

I still don't understand how that works.

No matter how many speculators get involved, in the end it has to be sold to a consumer. And the consumer is willing to pay the price. That's by definition demand.

 

If the City of New York charged triple or quadruple the current price of water, or if ConEd tripled the price of electricity, people would pay it too, because they have no other alternative.

Virtually everyone who drives uses gas. Virtually every consumer good in the US is moved to market by trucks or planes that run on gas. Farmers need gas to harvest every crop they plant. The consumer has no other option.

It's like electricity. You can reduce your electricity use, but you still have to pay for it, and you can't live without it. However, the price of water and electricity are regulated by the local, state or federal government.

 

These allegations are nothing new or unique in commodities. A Harper's story from July 2010 makes a very compelling case about how the wheat market was inflated by traders who made insane profits as people around the world faced food shortages to the point of starvation. And there was never an actual shortage of wheat, just a loophole for speculators to mine. The story is behind a paywall, but here is the fetcher paragraph:

The history of food took an ominous turn in 1991, at a time when no one was paying much attention. That was the year Goldman Sachs decided our daily bread might make an excellent investment.

http://harpers.org/archive/2010/07/0083022

EDIT -- this appears to be the full text of the story.

http://www.economics.arawakcity.org/node/618

Nothing had changed about the wheat, but something had changed about the wheat market. Since Goldman’s innovation, hundreds of billions of new dollars had overwhelmed the actual supply of and actual demand for wheat, and rumors began to emerge that someone, somewhere, had cornered the market. Robber barons, gold bugs, and financiers of every stripe had long dreamed of controlling all of something everybody needed or desired, then holding back the supply as demand drove up prices. But there was plenty of real wheat, and American farmers were delivering it as fast as they always had, if not even a bit faster. It was as if the price itself had begun to generate its own demand—the more hard red spring cost, the more investors wanted to pay for it.

“It’s absolutely mind-boggling,” one grain trader told the Wall Street Journal. “You don’t ever want to trade wheat again,” another told the Chicago Tribune.
“We have never seen anything like this before,” Jeff Voge, chairman of the Kansas City Board of Trade, told the Washington Post. “This isn’t just any commodity,” continued Voge. “It is food, and people need to eat.”

The global speculative frenzy sparked riots in more than thirty countries and drove the number of the world’s “food insecure” to more than a billion. In 2008, for the first time since such statistics have been kept, the proportion of the world’s population without enough to eat ratcheted upward. The ranks of the hungry had increased by 250 million in a single year, the most abysmal increase in all of human history.

Story is a damn fine read, and I think you'd be hard-pressed not to at least see the possibility of similar market manipulation going on in oil.

 

Those are governmentally-mandated monopolies.