Why are oil prices falling?

Opinion: April 27, 2012 at 12:00a.m.

Last week I paid 10-cents-a-gallon less for gasoline than I did the week before, at the same service station. While $3.79 seemed a bargain, it did cause me to wonder.

This weekend, I noticed the price sign at the station showed regular gasoline dropped an additional 5 cents to $3.74 a gallon.

“What’s going on?” I thought, as I recalled how one of my friends and former colleagues used to argue with me routinely about the true causes of the rise and fall of gas prices in this country.

Then Monday evening I pulled up to the pump at this national oil company station/convenience store. The advertised cost per gallon was a full 20 cents less than I had paid just two weeks before, $3.69.

That’s when I really remembered my former colleague becoming frustrated every time I mentioned the American people were being suckered by “Big Oil” and “greedy, manipulating speculators” who were playing the oil market like Las Vegas high-rollers and we poor consumers were being bilked in the name of free enterprise.

“Supply and demand,” my friend/adversary would say each time we debated oil prices.

I would insist there’s no supply problem, and all demands are being met.

“Do you see any lines at the pump?” I would ask.

He would say something like, “You just don’t get it.”

Speculators

And I admit, I don’t get it. I’m not an economist. I know very little about the oil industry beyond its record quarterly profits reports. But, I also know that over the past few years speculators have been driving the price of oil while the market analysts, media observers and so-called financial experts come up with some reason prices were rising.

It seemed every time Iranian President Mahmoud Ahmadinejad sneezed, the price for a barrel of oil would escalate. Even though the daily market values were for “future” delivery, the cost of gasoline would jump immediately. Why?

For months now, we’ve been told that Iran’s flirtation with nuclear power, turmoil in Libya and China’s demand for foreign oil were contributing to the increased cost of gasoline in this country. Adding to those troubles were refineries taken off line for maintenance or seasonal changes in formulations.

And we must not forget price hikes whenever a hurricane forms in the Atlantic (although 1,000 miles away) that forecasters say may hit offshore oil rigs in the Gulf of Mexico.

As I’ve driven around the past few days, I’ve noticed gasoline prices falling further. Some stations had regular unleaded priced at $3.64 a gallon. On Tuesday the website fortworthgasprices.com listed more than a dozen area stations with prices under $3.60; the lowest were several selling regular at $3.54.

Had I missed some national or international news that was drastically and rapidly affecting prices at the pump?

Ahmadinejad is as irrational as usual, although sanctions against Iran seemed to be getting the attention of Iran’s leaders. Libya is still unstable, and folks in China continue to buy more cars.

Oil production

Analysts say that China’s economy, as well as manufacturing in some European nations, may be contracting, and there’s real concern over the recent presidential elections in France with a strong showing by a Socialist Party candidate. There also has been more oil production coming out of Saudi Arabia and even an upswing in U.S. production, they say.

But the speculators are still there, and I agree with President Barack Obama that there should be greater oversight over the oil markets to mitigate the over-manipulation by those who profit through speculation. It’s been a troubling trend for too long.

Maybe the president’s announcement had something to do with the current price drop.

Of course I can hear my former colleague, Jack Z. Smith, saying, “It’s supply and demand, Bob Ray. You just don’t get it.”

Bob Ray Sanders is a columnist for the Fort Worth Star-Telegram. Distributed by MCT Information Services.