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No one, least of all President Barack Obama, should expect oil or gasoline prices to fall because of the five-point plan he unveiled at the White House on April 17. Obama’s proposal calls for adding staff at the Commodity Futures Trading Commission to monitor oil markets, spending more on information technology to track trading, stiffer penalties for manipulators, limits on the size of the bets speculators can make, and increased disclosure by the CFTC of trading data. There’s almost no chance that the package will pass in Congress, and in any case it would have little effect on near-term prices.
The temptation to blame speculators for higher oil prices, while wrong-headed, has a certain appeal. It’s of a piece with a broader narrative—on display in both the Occupy Wall Street and Tea Party movements—that the benefits of growth are going to an ever-narrower slice of the populace. Yet speculators serve a vital purpose: helping create a market of buyers and sellers. Many academic researchers have found that speculators, by anticipating future price moves, can reduce volatility.
As for outright price manipulation? It surely happens, and no one can take issue with the government trying to catch and punish those who break the law. Just don’t expect to see the results of enforcement efforts the next time you fill up.
Obama is correct about one point. Republicans are kidding themselves and voters when they argue that unfettered drilling in environmentally sensitive areas will lead to $2.50-a-gallon gasoline. Maybe Obama’s adversaries are reminiscing about those days not so long ago when gasoline was $1.63 a gallon. That was the price in December 2008, when it looked as if the world financial system might unravel.
The short-term market for oil is influenced by forces far beyond the control of the White House. What a president can do is devise policies that promote conservation, encourage the development of alternative and renewable energy, and work toward smart extraction of domestic fossil fuels. Trying to make the U.S. economy less dependent on oil, as Obama has done, is the best idea out there.
To read Michael Kinsley on Mitt Romney’s view of success and Al Hunt on key electoral swing groups, go to: Bloomberg.com/view.