by John M. Curtis
(310) 204-8700

Copyright June 1, 2009
All Rights Reserved.

        Threatening to sink a fragile economic recovery, Big Oil continues to escalate pump-prices, punishing consumers and business for the precipitous drop in U.S. gas prices last year. Since peaking June 9, 2008 at $4.02 a gallon, gas prices hit a new low Jan. 1, 2009 of $1.46, it’s been climbing back, hitting a new peak at $2.35, certainly not high by historic standards but too high to sustain economic growth.  Lower gas prices put more cash into consumers’ pockets, adding stimulus to an otherwise lackluster economy.  Suffering from a severe recession since Dec. 07, the economy can’t afford more Oil Industry price-gouging.  Former President George W. Bush and his Treasury Secretary Hank Paulson denied that the country faced a serious recession, instead quibbling over technical definitions.  Official records now indicate that the recession hit like a deadly torpedo in Dec. 2007.

            Real Gross Domestic Product shrank by 5.7 percent last month offering little hope for economic recovery anytime soon..  During the reign of former President George W. Bush, Big Oil had a green light to gouge businesses and consumers.  President Barack Obaama must not make the same mistake, reminding the oil industry that they can’t reap profit at the expense of the economy.  Former President Bill Clinton handed Bush good economic momentum, watching the economy screech to a halt under the weight of rising fuel prices and a costly war in Iraq.  While it’s true Sept. 11 threw the economy into a tailspin, it’s also true that Wall Street and  Big Oil wreaked its own havoc.  Nothing hurts an economy more than runaway energy prices, damaging the earnings and profit margins of virtually every business except the oil industry.  Obama can’t allow the oil industry to make the same mistakes..

            Barack should summons the heads of the nations’ biggest refiners and oil companies to the Oval Office for frank talk.  He needs to remind the industry that all must share in the sacrifices for economic recovery.  Big Oil can no longer boast record profits while the rest of the economy struggles.  Pump prices are up 20% in May and 40% since hitting its January lows.  Oil and gasoline inventories are so high that the industry has no place to store overflowing inventories other than in tankers offshore.  Oil industry smoke-blowers have offered every excuse under the sun to justify the current run-up in pump prices:  OPEC production cuts, demand in China and India, refinery problems, summer driving blends, etc.  Only the dollar’s recent slide could account for at least part of the steep run-up.  Past history showed little correlation between rising crude oil prices       and actual pump prices.

            Industry analysts remain puzzled for the latest blip in pump-prices.  “If you had asked a month ago if we would see $2.50 national average, I would have said no,” said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service.  Kloza believes that rising prices are due to analysts’ future expectations about demand because current demand for oil and refined products remain weak.  Deutsche Bank oil analyst Adam Sieminiski believes that another speculative bubble may be in the works as traders on the New York Mercantile Exchange hedge bets on oil and other commodities during a time of a declining dollar.  He sees recession, lowered demand, unemployment and hefty inventories as mitigating against currency fluctuations.  If Nymex traders continue to bid oil and gasoline futures into the stratosphere, pump prices will continue to skyrocket, bucking supply-and-demand.

            Obama has already watched wild Wall Street speculation in “derivataives” decimate the banking industry and tank the real estate market.  More speculation on Nymex promises to harm the economy by driving pump prices to unsustainable levels, fueling inflation and robbing the profits of most U.S. businesses.  Wall Street traders shouldn’t be allowed to drive oil futures through the roof at the expense of the U.S. economy.  General Motors’ expected June 1 bankruptcy and Chrysler’s April 30 Chapt. 11 filing should also depress fuel prices by moving full-steam to produce small, fuel-efficient cars.  As cars become more fuel efficient and as manufactures move toward hybrids and alternative-fuel vehicles, the oil industry expects to sell less oil.  With demand at multiyear lows, the oil industry expects to sell less-and-less oil and gasoline in the future.

            President Obama must do more rein-in Big Oil and Nymex from creating the next speculative bubble in the oil industry.  Regardless of the recession, all indications point toward lowered future demand.  Putting Nymex and Big Oil on notice, Obama must stand tough, using every tool at his disposal to prevent another speculative bubble.  Whatever problems remain in the economy, runaway fuel prices will delay economic recovery.  “Investors think the economy has bottomed and possibly recovering and  they’re moving to assets they thin will benefit from the economic recovery and that included commodities in general and oil specifically,” said Sieminiski, blaming the current run-up on positive expectations about future economic growth.  Without reading too much into latest bubble, the government must try to do a better job of controlling wild speculation today’s energy markets.

 About the Author

 John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.