The High Costs of Oil

Although Wall Street traders and oil company executives are enjoying record returns, most Americans aren’t seeing the benefit of that economic success. Working families are still struggling to find steady employment while Tea Party officials cut taxes for corporations and services for everyone else. As the Progress Report warned a month ago, gas and food prices, inflated by international speculators, hammer the middle class. Rising gas prices are expected to inflate ExxonMobil’s profits by more than fifty percent.

Meanwhile, catastrophic weather fueled by decades of oil pollution is uprooting lives and adding to the uncertainty of the much-needed economic recovery. Rep. Paul Ryan’s (R-WI) 2012 budget passed by the House Republicans compounds the threats by keeping billions of dollars in subsidies for oil companies while slashing investment in clean energy by 70 percent. While the GOP maintains a single-minded focus on subsidizing new oil drilling, even Goldman Sachs has admitted that “the price of oil has grown out of control due to excessive speculation.”

President Obama has taken notice, laying out his “plans to address rising gas prices over the short and the long term” in his weekly Saturday address. “Instead of subsidizing yesterday’s energy sources, we need to invest in tomorrow’s,” Obama said. “We need to invest in clean, renewable energy. In the long term, that’s the answer.”


Speculators today have about 70 percent of the open interest in the commodity markets,” explains hedge fund manager Michael Masters, who has founded the financial reform group Better Markets. “Ten years ago – they controlled roughly 30 percent of the market.” Commodities “index funds,” “which allow investors to bet on the price of several commodities at once,” have exploded in value from “about $15 billion in 2003 to $200 billion in 2008, and are currently valued at over $250 billion.”

What the administration and others should do, which they have the power to do quickly, is impose position limits, which would stop excessive speculation now,” says Better Markets’ Dennis Kelleher.

The Dodd-Frank legislation signed into law by Obama last year requires the Commodities Futures Trading Commission (CFTC) to set “position limits” on speculation, but the agency is planning to implement its proposed limits only by “early 2012, a year after the deadline set by lawmakers.” The CFTC has found that there are only about ten energy traders who are large enough to be affected by these position limits.

“On CBS’s Face The Nation, Sen. Richard Blumenthal (D-CT) “called for an aggressive federal probe — including a possible grand jury – into whether rising gasoline prices stem from illegal manipulation of energy markets.”

On Thursday, Obama “unveiled a new working group to combat any fraud or manipulation in the oil and energy markets” led by the CFTC and the Department of Justice. “If we can work more closely with the DOJ folks, we may be able to put more people in jail,” CFTC Commissioner Bart Chilton told The Huffington Post. 

By swamping the market, even without any deliberate fraud, these oceans of money swamp the traders who actually need to buy and sell the underlying commodities, such as oil producers and gasoline distributors. “A ban of both commodity index funds and exchange-traded funds that use commodity futures, removing much of this investment, would be an important and instantly measurable first step,” believes former oil trader Daniel Dicker. At a minimum, a transaction fee on speculators would keep the oil markets more reliable.


In his weekly address, Obama reiterated his call to “end the $4 billion in taxpayer subsidies we give to the oil and gas companies each year.” Americans of all stripes recognize that tax breaks and giveaways to oil companies need to be eliminated, despite the industry propaganda that these subsidies are needed to prevent high energy prices.

When asked about massive subsidies given to the oil industry, even Tea Party activists have agreed with progressives that there is a structural imbalance in the political system towards corporate power. Many of the oil-industry subsidies come in the form of passing corporate risks onto American families: there have been no laws passed to protect our nation from oil disasters like BP’s, and companies like Koch Industries enjoy the multi-billion dollar subsidy of being able to emit millions of tons of carbon pollution for free — while communities foot the bill for our increasingly dangerous climate. Far from raising prices at the pump, eliminating these subsidies would instead reduce oil companies’ outsized profits and corporate paydays.

If this Congress wants to take on the pain at the pump, it will support legislation to build a national infrastructure of electric charging stations for electric vehicles, deploy 21st-century high-speed rail, and curb oil profiteering by Wall Street. 


The GOP answer to Wall Street and Big Oil taking over our economic future is to give them even more power. The Ryan budget slashes the CFTC budget by nearly two-thirds, and would “slash investments in the research, development, and deployment of the clean energy technologies of the future.”

As they work to lose the future, they also plan to roll out a new iteration of the “drill baby drill” marketing campaign in May. “House Republicans are planning bill introductions, hearings, markups and floor votes on legislation aimed at expanding domestic oil production in response to high gasoline prices.” “Now, the GOP controls the floor agenda and plans to use it when they get back from the two-week spring recess.”

According to House Speaker John Boehner’s spokesman, “The White House and the rest of the Democrats who run Washington are terrified about the political impact of gas prices, because many of their policies — like the national energy tax — are explicitly designed to raise energy prices.”

In reality, big oil profits go up with higher gas prices, and the only “national energy tax” is the cost of our national oil dependence. Speaker Boehner’s office has the “concern” that Democrats are calling for investigations of market fraud “to distract from the real issue” of the “need to increase the supply of American energy.” 

In other words, they’re worried that the American public agree that oil companies and Wall Street need to be reined in, not left in charge of our energy policy. Even members of Boehner’s own caucus — like Rep. Tom Graves (R-GA) and Sen. Mark Kirk (R-IL) — admit the time has come to cut oil subsidies.

This post was originally published by ThinkProgress.

Related Stories:

As Gas Prices Rise, Can We Afford to Keep School Buses Running?

What Makes Gas Cost So Much? The Washington Posts Examines Some Myths

$5 For A Gallon of Gas? Yes, It Could Happen in 2012


Photo from richardmasoner via flickr
Written by Faiz Shakir, Benjamin Armbruster, Zaid Jilani, Alex Seitz-Wald, Tanya Somanader, Travis Waldron and Brad Johnson from ThinkProgress


William C
William C3 months ago

Thank you for the information.

W. C
W. C3 months ago


Fred Hoekstra
Fred Hoekstra4 years ago

Thank you Lindsay, for Sharing this!

Ron B.
Ron B.6 years ago

think of this .. all it takes is the Top 1% of this countries top income bracket to infiltrate and speculate on oil futures to gaff us and raise the prices horribly. want to change your own oil in your car?? now last month 1 quart of oil was $4.69 , now its over $6.00 per quart .. imagine that 3 years ago I paid $1.89 a quart for castrol GTX 10/30 , a year before that it was $1.29 anyone out there thinking yet?? the 6 tax breaks for the top 3% have done nothing to increase jobs or the economy it just made the assholes greedier

Joshua S.
Joshua S6 years ago

i would support removing all subsidies to oil companies (to level the playing field) and a gas price equal to a base price to the oil companies based on a *reasonable* profit motive (with a built in equitable percent for franchisees) plus an additional amount established annually that would be collected by the partnership for sustainable communities agencies (HUD/DOT/DEA) and split between transportation infrastructure repairs/renovations (no new roads) and alternative energy/smart growth projects. let's start the bidding total at $5.00 per gallon.....

Connie Kirkpatrick
Past Member 6 years ago

I did not get far in this article. So sick of hearing about the grievances for the middle class, I want to know about the lower class. What about how it effects us? We still get to vote. And just because I make less money does not mean I do not have the right to fairness, equality or to be heard.

I do not want to live on main street, but I do want you, who ever you are, to care about me. (not me per say.)


Ernie Miller
william Miller6 years ago

THe rise in Oil prices has a lot more to do with than just the oil companies However like farmers theya re the main comidity traders of oil they do reap the largest benifit from speculating. Unlike speculater the oil companies are raping and steeling from the poor in this country but depriving them of the basic needs to survive why destroying the environment that are required to live in.

Martin S.
Abe M6 years ago

Subject: Congressional Reform Act of 2011

This is an easy one to forward, I hope you pass it on as well. This is exactly what elected officials need to have happen. This is a no brainer!!! It is time. If you agree send it to 20 people good and true. If you disagree, please delete it.

The 26th amendment (granting the right to vote for 18 year-olds) took only 3 months & 8 days to be ratified!
Simple! The people demanded it.
That was in 1971...before computers, before e-mail.

Congressional Reform Act of 2011

1.Term Limits.

2. No Tenure / No Pension.
Congressman collects a salary while in office and receives no pay when they are out of office.
3. Congress (past, present & future) participates in Social Security. All funds in the Congressional retirement fund move to the Social Security system immediately. All future funds flow into the Social Security system, and Congress participates with the American people.
4. Congress can purchase their own retirement plan, just as all Americans do.
5. Congress will no longer vote themselves a pay raise.
6. Congress loses their current health care system and has the same health care system as the American people.
7. Congress must equally abide by all laws they impose on the American people.
8. All contracts with past and present Congressmen are void effective 1/1/12.
Congressmen made all these contracts for themselves.
Serving in Congress is an honor, not a career. The Founding Fathers envisioned cit

Edward M.
Edward M6 years ago

What, you mean to tell me that ownership of such a valuable resource is still in the hands of spivs and speculators.
Well, until you all decide to get together and do something positive about this situation, do stop moaning and just put up with it!

Danielle Herie
Danielle Herie6 years ago