Obama still doesn't get it on economics

Reuters writes: "Obama blames speculators for rising fuel prices"

Obama doesn't understand that "speculators" smooth the swings in prices. Speculators make money by eliminating price differences over time. If they think that prices will rise, they buy oil now and store it to sell when those higher prices arise. If prices don't rise, those speculators LOSE money, losing their OWN money. Obviously there is a lot of turmoil in the Middle East. If Saudi Arabia has political trouble or other oil countries have problems, what happens to the price of oil then? BY storing some oil in case those events occur, speculators will make oil available when that short fall occurs.

President Barack Obama on Tuesday blamed speculators for driving gasoline prices higher and straining American consumers, saying there was enough oil in world markets to meet demand.

Speaking at a community college in suburban Virginia, Obama said increasing production of U.S. oil and creating a market for fuel-efficient cars would help meet the country's energy challenges. . . .

Rising fuel prices are a persistent concern for the White House, which is concerned about their impact on the economy and on voters' wallets as Obama runs for re-election.

Average U.S. gasoline prices hit $3.84 a gallon last week, the most expensive since August 2008, as oil prices have soared above $100 a barrel. . . .

Obama said that global oil supply is adequate and that speculators are driving up prices significantly.

"It is true that a lot of what's driving oil prices up right now is not the lack of supply. There's enough supply. There's enough oil out there for world demand," Obama said.

"The problem is ... speculators and people make various bets, and they say, you know what, we think that maybe there's a 20 percent chance that something might happen in the Middle East that might disrupt oil supply, so we're going to bet that oil is going to go up real high. And that spikes up prices significantly." . . .

Here is the transcript of part of his talk.

Now, I wish I could tell you that there was some easy, simple solution to this. It is true that a lot of what’s driving oil prices up right now is not the lack of supply. There’s enough supply. There’s enough oil out there for world demand. The problem is, is that oil is sold on these world markets, and speculators and people make various bets, and they say, you know what, we think that maybe there’s a 20 percent chance that something might happen in the Middle East that might disrupt oil supply, so we’re going to bet that oil is going to go up real high. And that spikes up prices significantly.

We’re now in a position where we can investigate if there’s unfair speculation. We’re going to be monitoring gas stations to make sure there isn’t any price gouging that’s taking advantage of consumers. But the truth is that it is a world commodity, and when prices spike up like this there aren’t a lot of short-term solutions. What we have are medium- and long-term solutions.

Now, one solution is making sure that we’re increasing production of U.S. oil. And we have actually continually increased U.S. production, so U.S. production is as high as it’s ever been. The problem is we only have about 2 to 3 percent of the world’s oil reserves, and we use 25 percent of the world’s oil. So when you say we should be using traditional sources, the problem is we’ve got finite sources when it comes to oil. And that means we’ve got to find some replacements. . . .

UPDATE: More on speculators from the Obama.

President Barack Obama said Thursday that the Justice Department will try to "root out" cases of fraud or manipulation in oil markets, even as Attorney General Eric Holder suggested a variety of legal reasons may be behind gasoline's surge to $4 a gallon.

"We are going to make sure that no one is taking advantage of the American people for their own short-term gain," Obama said at a town-hall style meeting at a renewable energy plant in Reno.

The national average price for a gallon of regular gasoline was $3.84 on Thursday, about 30 cents higher than a month ago and almost a dollar higher than a year ago.

Obama, decrying such levels as yet another hardship "at a time when things were already pretty tough," said Holder was forming the Financial Fraud Enforcement Working Group.

The task force will focus some of its investigation on "the role of traders and speculators" in the oil-price surge Obama said. The group will include several Cabinet department officials, federal regulators and the National Association of Attorneys General.

In Washington, Holder said he would press ahead with the investigation, even though he did not cite any current evidence of intentional manipulation of oil and gas prices or fraud.

"Based upon our work and research to date, it is evident that there are regional differences in gasoline prices, as well as differences in the statutory and other legal tools at the government's disposal," Holder said in a memo accompanying a statement announcing the task force. "It is also clear that there are lawful reasons for increases in gas prices, given supply and demand."

"Nonetheless, where consumers are harmed by unlawful conduct that has the effect of increasing gas prices, state and federal authorities will take swift action," Holder said. . . .

The AP article also made this inaccurate claim:

There's not much Obama can do to affect the price of gasoline in short term, something he acknowledged in his remarks. Gas prices have risen steadily as a result of tensions in the Middle East and northern Africa and rising demand from China and other emerging economies. . . .

The reason that this is inaccurate is simple: greater future supplies of gas increase current gas supplies. Just as higher future prices cause people to save gas to make it available when prices are expected to be high, the reverse is also true. Lower future prices mean that there is little reason to save gas for the future and existing inventories will be run down.

Here is part of his speech on Thursday.

"Last month, I asked my attorney general to look into any cases of price gouging, so we can make sure no one’s being taken advantage of at the pump. Today, we’re going a step further. The attorney general’s putting together a team whose job it will be to root out any cases of fraud or manipulation in the oil markets that might affect gas prices — and that includes the role of traders and speculators. We are going to make sure that no one is taking advantage of the American people for their own short-term gain." . . .

Some of the political fallout is discussed here. It isn't true that something can't be done in the short-run. Greater future supplies will reduce prices in the future and that in turn will reduce prices today. You don't have to wait for the supply to show up to reduce prices.

House Republicans are planning bill introductions, hearings, markups and floor votes on legislation aimed at expanding domestic oil production in response to high gasoline prices.

The plain truth that there is realistically nothing Congress can do in the short- or mid-term to affect gas prices won’t get in the way of both parties trying to score political points by complaining the other is not addressing the problem.

"The White House and the rest of the Democrats who run Washington are terrified about the political impact of gas prices, because many of their policies — like the national energy tax — are explicitly designed to raise energy prices,” said Michael Steel, spokesman for House Speaker John Boehner.

Obama on Thursday pointed to high gasoline prices for his sagging poll numbers. "My poll numbers go up and down depending on the latest crisis and right now gas prices are weighing heavily on people," he said at a Los Angeles fundraiser. . . .