Monday night, Karl Rove and Sean Hannity had a lot of fun "worrying" over how rising gas prices might affect President Obama's re-election. Rove is certain that no President can be re-elected if gas prices are rising.
I thought that was interesting, so I went and checked out some facts about historical oil prices, especially since Rove seems to have forgotten that the all-time high for gas prices was in July, 2008, when they hit $4.21 per gallon. Remember John McCain calling for a suspension of the national gas tax? Shortly after hitting that all-time high, prices plummeted. In fact, there has been a trend of extreme volatility in gasoline (and oil) prices for the past ten years, as you can see from this chart:
What's notable about Hannity and Rove's concern trolling here is what they don't mention: Oil speculation. Instead they natter on about how President Obama wants gas prices to be at $5.00 per gallon to serve his "radical agenda." But speculators are playing a very large role in the steep rise in the price of oil, once again, just like they did in 2008.
Via Kansas City Star:
While tension over Iran has ratcheted up in the past few months, the price of oil and gasoline has leaped far beyond conventional supply and demand variables. Financial speculators are piling into the market, torquing the Iranian fear factor into ever-higher prices.
"Speculation is now part of the DNA of oil prices. You cannot separate the two anymore. There is no demarcation," said Fadel Gheit, a 30-year veteran of energy markets and an analyst at Oppenheimer & Co. "I still remain convinced oil prices are inflated."
The fear premium is the froth above what prices would be absent fears of a supply disruption - somewhere in the $80 to $85 range for a barrel of crude oil. It means that even with the extra cost put on oil from Iran fears, prices are at least another $10 higher than what demand fundamentals would dictate.
Why? Financial speculators.
What should the price of oil be if left to conventional supply and demand market fundamentals? Canada's the largest supplier of imported oil to the United States, which now actually produces more than half of the oil it consumes. Production and delivery costs for a barrel of oil from Canada are about $75 a barrel. The market-fundamentals cost for a barrel of oil is in that ballpark; above that, speculation sets the prices.
"It's as simple as that," said Gheit, who has testified before Congress and called for regulatory limits on speculation in commodities markets.
Historically, financial speculators accounted for about 30 percent of oil trading in commodity markets, while producers and end users made up about 70 percent. Today it's almost the reverse.
A McClatchy Newspapers review of the latest Commitment of Traders report from the Commodity Futures Trading Commission, which regulates oil trading, shows that producers and merchants made up just 36 percent of all contracts traded in the week ending Feb. 14.
Consider this. For the past six weeks or so, Fox News has been hammering away on Iran and the possibility of going to war with Iran. They've ratcheted up the Iran fears by a factor of ten. Every single Fox News show breathlessly tells viewers about the Great Satan and how they are such a national security threat. In fact, Newt Gingrich went so far as to tell a town hall audience yesterday that President Obama is a threat to national security because he won't make nice with Netanyahu and saber-rattle with him over the perceived "Iran threat." It's feeling a lot like Iraq all over again, isn't it?
2008: Rampant oil speculation spikes prices to unprecedented levels. As academics from the Peterson Institute, the James Baker Institute at Rice University, and others conclude, non-commercial speculators begin to dominate the market, forcing up prices. Although the evidence was abundant that speculators caused the massive price spikes during the summer of 2008, regulators were toothless to act. A bipartisan majority in the House overwhelmingly passed legislation to award powers to the CFTC to oversee rampant oil speculation, but Republican in the Senate — acting with help from Koch lobbyists — killed the bill, called the Energy Markets Emergency Act.
This is the recipe:
- Use the conservative media noise machine to ramp up concerns about Iran, an oil-producing nation. This is the fear premium.
- Make sure all conservatives running for President echo the same talking points about how the sole obstacle to lower gasoline prices is President Obama's silly homage to "radical environmentalists".
- Make sure there are no impediments to behind-the-scenes manipulation of crude oil prices via speculation.
- Speculate wildly, hedging all ways so no matter what happens, you make money.
- As prices rise, use your 24/7 media machine to make sure everyone knows these prices just wouldn't be rising without policy decisions made by this President.
- Whatever you do, do NOT mention speculation at all.
- Lather, rinse, repeat. Over, and over, and over until it becomes fact without evidence.
Don't expect Hannity and Rove to tell you that. It would wreck their fact-free discussion and cause their "concerns" to evaporate.