Why gas prices are rising

Nobody really knows for sure why gas prices are rising but you can count on the Republicans to blame President Obama, as they do every time there’s a single bit of bad news. And of course the GOP is looking to use this to push their own political agenda. In this case they want to use the public fear of a gas crisis to resurrect their long held desire to violate the ANWR wilderness, plant oil rigs off every beach and risk our national water supply by forcing the XL Keystone pipeline authorization.

There’s always more than one factor behind inexplicable rises in gas prices, but this time it’s surely not demand, which is the lowest in 15 years. Yet the prices are rising much earlier than normal. So why? Business Week has one possible answer:

Strangely, the current run-up in prices comes despite sinking demand in the U.S. “Petrol demand is as low as it’s been since April 1997,” says Tom Kloza, chief oil analyst for the Oil Price Information Service. “People are properly puzzled by the fact that we’re using less gas than we have in years, yet we’re paying more.”

Kloza believes much of the increase is due to speculative money that’s flowed into gasoline futures contracts since the beginning of the year, mostly from hedge funds and large money managers. “We’ve seen about $11 billion of speculative money come in on the long side of gas futures,” he says. “Each of the last three weeks we’ve seen a record net long position being taken.”

This looks eerily similar to what happened in 2008. Big money speculators make huge bets on prices rising to new highs, and suddenly, prices start rising to inexplicable highs. Apparently, the correlation can’t be empirically proven, but it surely is oddly coincidental. As I recall, back in 08 there was some call for an investigation of price manipulation at which point, the speculation suddenly eased up and the prices mysteriously dropped. Maybe they should try that again, just to see what would happen. [graphic via]