Oil speculators
I'm of two minds on the current price of motor fuels and heating oil.
On one hand, paying between $4-5 per gallon for gasoline is giving the greatest jump start to auto fuel economy America has seen since the aftermath of the original Arab oil embargo in 1973. People are seeking out and buying new and used cars with high gas mileage, especially the Toyota Prius. My wife, as I mentioned in a previous post, was contacted by the Toyota dealer that sold her the Prius she purchased in 2005 and asked if she maybe was interested in selling it back. My cousin Jeff in Michigan was on the lookout for a used Volkswagen diesel car, which he says gets about 50 mpg. Even though diesel costs more than gasoline, approaching $5 per gallon, the savings would be considerable.
But on the other hand, high heating oil prices, if they stay at current levels (again, on the road to $5 a gallon), will kill poor people next winter. Yes, kill them. There will be fire deaths, freezing deaths, and carbon monoxide deaths all linked in one way or another to the fact that people of modest means can't afford to heat their homes at $5 a gallon. Do the math: maybe 750 gallons of heating oil per heating season for a typical house, even more for the uninsulated rental slums occupied by too many of the poor in America. That's at least $3,750. Try paying for that--and for food costing much more than last year--on a part-time paycheck from Wal-Mart.
There was an interesting story on CBS Marketwatch.com yesterday about a hearing before the House Energy and Commerce Committee in Washington. Four Wall Street traders testified under oath that if speculation was eliminated from the oil market, the price of crude oil would quickly drop to its marginal cost of $65-70. To put that in perspective, a barrel of crude traded yesterday for about $136. The traders who testified said the drop would occur quickly if Congress acted to rein in the speculators. Gasoline would quickly go back to about $2 per gallon.
The role of speculation in the current oil crisis has been discussed, first quietly and now more loudly, for the past six months. It's one thing for people to bid up stocks to unreasonable levels, as happened in the 1997-2000 Internet boom. No one really got hurt when share prices were rising, and when the inevitable crash occurred later in 2000, many Americans were untouched. An oil bubble, though, hurts everyone across the board. There are few winners and many losers. It is a massive wealth transfer. Even if you don't drive, you pay for it in more costly food and home heating fuel.
It will be interesting to watch whether Congress can take reasonable measures to stop oil market speculation.