Afraid of Getting Gouged by Gas Prices? Blame Wall Street, Critics Say

Afraid of getting gouged by higher gas prices this summer? Blame Wall Street, some critics say.

Many Americans are still scarred by last year's summer gas-price spike to $4 a gallon. This summer gas prices are down around $2.50 a gallon, but for the first time since mid-June, prices have gone up week-over-week.

The laws of supply and demand, though, indicate that prices should be heading down, not up: supply has increased, demand has decreased.

With American consumers struggling to survive the worst economic crisis since the Great Depression, concern about a possible increase in gas prices now has some lawmakers pointing the finger of blame squarely at oil speculators on Wall Street.

"When there's a lot of supply and limited demand, we expect prices to go down," Sen. Bernie Sanders, I-Vt., told ABC News. "That's where we are today: A lot of supply and limited demand. But what's happening is our friends on Wall Street are once again into their speculation. They own a substantial part of the oil futures market and they are artificially driving prices up."

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Sanders is leading the charge for the government to take action to stamp out oil speculators.

This week the chief government regulator signaled that action could be coming down the pipeline. On Tuesday, Gary Gensler, the chairman of the Commodity Futures Trading Commission, kicked off a series of public hearings on the issue by warning of "strict" new limits on traders betting on energy contracts.

"We must seriously consider setting strict position limits in the energy markets," Gensler said at the hearing in Washington.

Sanders, who testified at Tuesday's session, singled out Goldman Sachs as one bank responsible for the rise in oil prices. Goldman Sachs told ABC News that they were unable to comment at the present time.

Another lawmaker sounding the alarm on excessive speculation is Rep. Bart Stupak, D-Mich., chairman of the House Energy and Commerce Committee's Subcommittee on Oversight and Investigations.

"We cannot continue with the status quo and allow excessive energy speculation to inflate energy prices beyond underlying supply-and-demand fundamentals," Stupak said. "Excessive speculation is having a devastating effect on energy prices and the global economy."

The CFTC can prevent that from happening if it can ultimately drive speculators out of the game, the lawmaker said.

But one economist said what the banks are doing is exactly what the CFTC is supposed to make happen.

"He's wrong," said Philip Verleger, an economist and professor at the University of Canada who has studied oil prices extensively and will testify before the CFTC in August. "His economics are wrong."

Verleger said the reason for the recent build-up in oil inventory is that it has become profitable for buyers to purchase oil today and then sell a contract to deliver that oil at some point in the future at a higher price.

For the first buyer, it represents a guaranteed, risk-free return on the initial investment. For the company that buys the futures contract, it allows it to lock in prices for oil it will need in the future.

"That is hedging, that is what the CFTC was set up to facilitate in 1936," Verleger said.

Verleger added that banks like JP Morgan Chase have jumped into the oil business thanks to the Federal Reserve, which has made money available to them at low costs.

Bloomberg reported in June that JP Morgan Chase hired an oil tanker to store heating oil off the cost of Malta. According to Bloomberg, the bank's actions are similar to those of Citigroup, which took similar steps, hiring a ship to store crude oil at sea.

The banks buy the oil at lower prices today and sell it in prearranged futures contracts at a higher price at a later date.

Purchasing oil and then reselling it immediately and profiting from the difference in price is more likely to be referred to as arbitrage. Speculation would entail less certainty about future prices and with that risk, the possibility of greater profits, or possibly even losses.

The lawmakers said they firmly believe that speculation accounts for the rise in oil prices and want the CFTC to do something about it.

"The long-term goal has got to be to get excessive oil speculation out of that area," Sanders said. "If we can do that and allow supply and demand to do what it does, I suspect that oil prices will drop fairly significantly."

Asked if this issue could be the next source of serious public outrage after the Wall Street bailout backlash, Sanders replied: "I think it should be. And I think it will be."