Oil Prices And The “Evil Speculators”
Blaming “oil speculators” has apparently become all the rage, from the President all the way to an article on a usually reliably conservative blog, and one I’ve linked to often in the past.
However, two Cato senior fellows took a look, and decided, no, speculators aren’t to blame.
With gasoline selling at around $4 per gallon, the political hunt is on to track down the ne’re-do-wells responsible. The primary suspects seem to be Wall Street speculators who, we’re told, are gaming the crude oil futures market to create price increases out of thin air. It is a tale, however, told by an idiot, full of sound and fury, signifying ignorance.
And that’s just the first paragraph.
More formal statistical tests (known as “Granger-causality tests” to economists) examine the impact of traders’ behavior on prices within futures markets. Do futures prices follow the bets taken by market participants or do those bets follow prices? A federal interagency task force undertook one such econometric analysis in 2008 and found that futures price changes from January 2000 to June 2008 preceded net position changes by any group of traders. An updated and more rigorous econometric study by economists Bahattin Buyuksahin and Jeffrey Harris found the same thing for July 2000-March 2009.
These findings undermine the claim that speculators’ behavior increases gasoline prices. “The lack of even Granger-causality (let alone true causality) between positions and prices undermines the prospect that speculative trading has driven recent dramatic price swings in the crude oil futures market,” concludes Buyuksahin and Harris. “Rather, we believe it more likely that both prices and positions react to the same factors, such as global demand and supply.”
So it’s not speculators, it’s just the usual supply and demand. Which means that President Obama could very easily lower gas prices, just by telling his employees to stop the permitorium that’s keeping us from drilling for our own oil right here in the US.
But he isn’t. So now you know who to blame.