WisBusiness: Expert says speculators pushing up oil prices

By Brian E. Clark

Analysts say the world is well supplied with oil now, though you might not know it with gasoline prices approaching $3.50 a gallon here in Wisconsin.

The reason gas prices are sky high is because of Wall Street speculation and commodities market traders who have pushed the price for a barrel of oil to $114, said Ben Brockwell, a director of the Oil Price Information Service (OPIS).

Brockwell, who spoke to the Wisconsin Petroleum Marketers Association today at the Marriott West, blamed investment banks such as Goldman Sachs and hedge fund traders for the run-up in oil prices. But he said retailers are seeing little gain from the increase.

“Their profits are getting squeezed,” he said. “They are taking a lot of heat from the public, but they are only getting nine or 10-cent margin on a gallon of gas and in some cases that’s going down.”

But Brockwell said the price of oil may be coming down to between $78 and $88 a barrel by the end of the year. That should translate into lower prices for gasoline, though he said rising global demand for diesel will keep those costs – $4.11 on Tuesday – high.

When Brockwell spoke to the petroleum marketers group last year, he noted that a barrel of oil was selling for $65. And he said it is possible that it could drop below that again this year, but he warned against betting any substantial amount of money on his prediction.

He said the cost of oil has only moved up since then. Still, he reminded his audience that the market is cyclical and the price could retreat again, especially if investors desert oil for another commodity or decide to return to the stock market.

“However, we are now in the sixth year of a cycle that has seen nothing but higher prices,” said Brockwell, who noted that the falling value of the dollar as added $15 to the cost of a barrel of oil.

He called that another of the leading reasons why prices have risen to well over $100 a barrel.

“What has happened as the Fed has lowered interest rates, it has decreased the value of the dollar,” he said. “The federal deficit has also decreased the value of the dollar.

“Investors, including foreign countries, that had a lot of confidence in American securities and the American dollar as an investment instrument have pulled that money out of the dollar and low-interest-bearing investments.”

Where many of them have placed their money is in commodities, he said.

“Oil is the biggest and the best of all the commodities, including heating oil futures and gasoline futures,” he said. “All you need to do is look at the return on any investment with over the past five years with the name energy on it has yielded a return that is second to none. It has outpaced everything by far.”