Chilton: Wall Street's cut of high gas prices

Traders monitor oil prices at the New York

Traders monitor oil prices at the New York Mercantile Exchange (Feb. 21, 2012) (Credit: AP)

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Here we go again. Gas prices at more than $4 a gallon in some parts of the country. Unless they don't drive, folks can't escape the pump price pain. Businesses large and small that are dependent upon petroleum feel great pain.

There's no doubt that tensions in the Middle East, particularly in Iran, are a primary reason for rising oil prices. But so are better growth expectations and expected increased demand from countries like India, China and Brazil.

Those expectations make Wall Street speculators salivate. And, why wouldn't they? If it appears they have a good bet that oil futures bought today may be worth more tomorrow and even more in a month, why wouldn't they take that bet? Well, they are -- Wall Street oil speculation is on the rise ... again.


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As President Barack Obama said just recently, "When uncertainty increases, speculative trading on Wall Street can drive up prices even more."

One of the big Wall Street banks has said that each million barrels of net speculative length adds as much as 10 cents to the price of a barrel of crude oil. But, what does that mean to us when we fill our tanks? With a little math, you can determine that the "speculative premium" on oil these days is around $23 a barrel -- and that translates into about an extra 56 cents for a gallon of gas.

I won't bore you with the arithmetic, but that means if you fill up a Honda Civic, the speculative premium costs $7.39 every time you fill-er-up. If you drive a Ford Explorer or F150, the total is $10.41 and $14.56, respectively.

If folks fill up once a week, the Civic owner is putting out $384.28 more per year, the SUV owner $541.32 more, and the pickup owner $757.12 more. So yes, we're talking real money and a real drain on families, businesses and our economic recovery.

There's nothing wrong with speculation. We need speculators to have fully functional financial markets. It's excessive speculation that becomes a problem. When one or two speculators (often big Wall Street banks) take huge positions, there's bound to be a price impact. That's why speculative position limits are necessary and must be implemented soon.

Over the long term, a national energy policy that includes things like fuel efficiency standards, bio-energy and efforts to produce more domestic energy is also needed. For today though, limiting excessive Wall Street speculation won't take us back to the days of $1-a-gallon gas, but it will help limit the pump price pain.

Bart Chilton is a commissioner on the U.S. Commodity Futures Trading Commission. Readers may write to him at CFTC, Three Lafayette Centre, 1155 21st Street NW, Washington, D. C. 20581; website: www.cftc.gov.

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