Texas Gas Prices Rose Because People Bet That They Would

 Good ol’ West Texas Intermediate has been hanging around the $100 a barrel mark for quite some time now, but the real issue is gasoline prices have hit the $3.50 average well before the summer driving season.  What’s driving the price up?  It sure as hell isn’t demand.

Strangely, the current run-up in prices comes despite sinking demand in the U.S.“Petrol demand is as low as it’s been since April 1997,” says Tom Kloza, chief oil analyst for the Oil Price Information Service. “People are properly puzzled by the fact that we’re using less gas than we have in years, yet we’re paying more.”

Kloza believes much of the increase is due to speculative money that’s flowed into gasoline futures contracts since the beginning of the year, mostly from hedge funds and large money managers. “We’ve seen about $11 billion of speculative money come in on the long side of gas futures,” he says. “Each of the last three weeks we’ve seen a record net long position being taken.”

Somebody’s making huge bets that gas prices are going to be through the roof, so much so that hey, gas prices are going through the roof.  Record  long futures this early in the year when demand is at a 15-year low seems like a lousy bet on paper, but a lot of people are betting a lot of money that the country will have to deal with $4.50 a gallon soon.  And lo and behold, up goes both crude and gas as the long money becomes a self-fulfilling prophecy.  All canoodling aside in the Straits of Hormuz, this is very much looking like what happened in 2008.

Funny how that works.

Balloon Juice / By Zandar | Sourced from

Posted at February 15, 2012, 9:49am

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