How badly has oil speculation really hurt our economy? Do you have any idea how much the speculation premium of gasoline prices has destroyed our household balance sheets on a national level? This diary is designed to give you some idea of the total effects on U.S. GDP from excessive oil speculation.
Thanks to timely diaries currently on the rec list on this topic.
The Energy Information Administration says that on average the United States uses 378 million gallons of motor gasoline per day
from : http://www.thestatecolumn.com/...
In recent weeks, CFTC Chairman Gary Gensler said that 80 percent of the oil futures market is held by speculators, squeezing out bona-fide hedgers such as farmers and airlines. Just a decade ago, speculators controlled 37 percent of the oil futures market. Goldman Sachs has estimated that for every million barrels of oil held by speculators, the price of a barrel of oil goes up 8 to 10 cents. And last month, when oil was trading at just under $100 per barrel, the CEO of Exxon Mobil said when questioned by Cantwell that oil should cost between $60 and $70 per barrel if the price were based on supply and demand fundamentals. The last time crude prices were stable in the $60-$70 range was between June and August of 2009 and the national average price of regular gasoline was $2.50 to $2.70, according to the Energy Information Administration.
Since the Average price of 2011 is about $3.50, this means that in 2011 the U.S. economy gave the oil companies an additional $340 Million dollars a day
Today is June 23, this is the 174th day in 2011.
we have paid 59 billion dollars extra in gasoline so far this year!
This is money taken out of the pockets of everyday consumers, as my friend said recently on her trip to Oregon:
"Gasoline was only $3.65 per gallon, we were able to get a couple of free sandwiches with the money we saved filling up the gas tank!"
All that money being paid extra is money that would be going into LOCAL ECONOMIES. This money gets recirculated in the economy many times and has a multiplier effect. This $59 billion dollars being sucked out of the veins of the consumer's pockets represents over $180 billion dollars in real economic activity!
Now pay attention, because this is the important part:
Our U.S. GDP so far this year has been about $6 trillion dollars.
Losing $180 billion dollars in economic activity so far in 2011 represents THREE PERCENT OF GDP!
How does this affect hiring and housing costs? how does it affect public confidence? investment levels?
in other words, our 2011 GDP targets (just lowered today by the fed) would be TRIPLED if this speculation charge wasn't burdening the u.s. economy!
but that's not the whole story
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If the CEO of Exxon thinks it should be between $60-$70 per barrel, that means that it should probably be closer to $30-$40 per barrel. Exxon simply has too much vested interest in inflated oil prices to give an honest answer to this question.
To find what the reasonable oil price should actually be we need to look to the past, before speculators took control of the price curve.
As you can see, the historic baseline period of pre-speculation prices happened between 1996 and 2005. During this period, the average price of barrel of crude oil was about $20.00 per barrel.
say the "real price" should be $30.00 per barrel, (and not taking the CEO of Exxon as the authority on this one). We find out that, during the time that oil was $30.00 per barrel, the price of a gallon of gasoline was around $1.40.
Since 2005 the average price as been around $3.00 per gallon.
we averaged 300 million gallons of gasoline consumed each day during this period
that is an average of 109.5 billion gallons of gasoline consumed each year
that means 657 billion gallons of gasoline were consumed in the U.S. between June 23rd, 2005 and today.
with a speculation price premium of about $1.50 per gallon. . .
U.S. consumers spent $1 TRILLION DOLLARS above what the "real" price of gasoline should have been in the U.S. between June 23rd 2005 and today!!!
and since there is a multiplier effect from this money if it was left to be spent on sandwiches. . .
this means that the U.S. economy lost $3 TRILLION DOLLARS of economic activity in the last 6 years!!!
That amounts to 3.6% of GDP EACH YEAR!!!!