If it feels like we’ve been here before, we have.
California’s gasoline prices are climbing past $3 per gallon for the second time this summer.
And the reason this time is the same as the last – a bull market for
crude oil. Big investors are pushing up the price of crude, even though
the country isn’t using much oil right now. Those rising prices
probably will fuel efforts under way in Washington to tighten
regulation of the market for crude oil futures, contracts to buy oil.
"Oil futures are being bought for every reason except supply and
demand," said Judy Dugan, research director for Consumer Watchdog, a
nonprofit group pushing for regulation. "If these were just hats or
shoes, it wouldn’t matter. But because this is an essential commodity,
California’s average price for a gallon of regular gasoline hit
$2.98 on Thursday, up 11 cents in the past week. San Francisco passed
$3 this week, hitting $3.07 today, according to the AAA auto club.
Gas prices typically peak in the early summer and drift down through
the fall. But this summer they’ve swung up, down and back again.
California’s average gas price hit $3.03 in June, fell to $2.84 in
July and is now rising again. During the same period, the national
average reached $2.69, dropped to $2.47 and hit $2.61 today, according
Demand is down
Prices are rising not because Americans are buying more gas. With
the country mired in recession, demand for gasoline is 2.3 percent less
than a year ago, according to the Energy Information Administration,
the statistics branch of the U.S. Department of Energy.
Gasoline sales are so weak that refineries have ratcheted back
production, cutting the amount of oil they need. West Coast refineries
processed less oil last month than they have in any July since at least
1992, which is as far back as federal records stretch.
"In our usual summer months, our refiners are cranking out over a
million barrels a day, and we just haven’t seen that this year," said
Susanne Garfield, spokeswoman for the California Energy Commission.
"Demand is just flat."
But that hasn’t stopped the oil market bulls.
Oil futures traded on the New York Mercantile Exchange closed today
at $71.94 per barrel, up 12 percent in the past month. In part, big
institutional investors are using oil as a hedge against the weak
dollar. They’re also betting the economy will improve this year,
driving up demand for oil and gasoline.
The rising prices come at a sensitive time.
A federal regulatory agency – the Commodity Futures Trading
Commission – held three meetings in the past two weeks to discuss
limiting oil market speculation. The commission’s new chairman, Gary
Gensler, has suggested placing hard limits on the number of oil
contracts that any investor can hold. The commission resisted calls for
increased regulation last year, when oil prices hit a historic high
above $145 per barrel, but has adopted a very different attitude under
the new administration.
In addition, the Federal Trade Commission adopted a rule Thursday to
prevent manipulation in the wholesale markets for oil and gasoline.
Companies that make misleading statements about fuel production,
supplies or prices – statements that could affect the market price for
those fuels – could be fined $1 million per day.
"This new rule will allow us to crack down on fraud and manipulation
that can drive up prices at the pump," said FTC Chairman Jon Leibowitz.
The American Petroleum Institute, the oil industry’s main lobbying
group, argued Thursday that the rule isn’t needed and could lead
companies to disclose less information than they currently do.
"There have been numerous and extensive FTC investigations of the
petroleum industry that have not uncovered any evidence that market
manipulation has distorted petroleum markets or harmed consumers," the
institute said in a press release.
E-mail David R. Baker at [email protected].