Letter: Supply, demand rules ... for now

To the Editor:

Winston Kaehler’s letter (R-E, April 17) regarding the sand mines and the potential for environmental disaster when using the process called fracking stated that 80 percent of the oil market was pushed by speculators. While I agree with Mr. Kaehler regarding the need for the public to get educated as to the detrimental side effects of fracking, his statement regarding the oil markets was slightly off the mark.

Forbes magazine, a bastion of conservatism, admits that a portion of the oil market is in fact pushed by the speculators and big oil companies. They rate that manipulation at 25 percent; most industry analyst say that upwards of 50 percent of the price that we pay at the pump is directly affected by the actions of those speculators and the influence of “big oil.”

The way oil is traded on Wall Street with the influence of derivatives and those shamelessly courting an easy profit, is costing our family budgets hundreds of extra dollars a year. These derivatives that are traded have nothing to do with “supply and demand” and everything to do with greedy profit.

Simply put, derivatives are nothing more than a piece of paper; just another way for those fortunate enough to have millions of dollars to make more and more money by betting that somebody else gets “soaked”. That somebody is the American public.

But, the fact of the matter is that the price of gas at the pump is still at the mercy of supply-and-demand economics. When refineries shut down for repairs, that limits availability and the price goes up accordingly and when the Iranians threaten to start sinking oil tankers, the market will respond.

And when countries like China use ever increasing amounts of petroleum, the price will go up.

Unfortunately, those traditional and slightly more reliable methods of trading are a smaller and smaller fraction of the way oil is priced.

Steve Murphy

Red Wing

Tags: opinion, letters