TRADING PRICES

Better documenting of oil futures trading, as proposed by some U.S. senators recently, may help restore public confidence in energy market, but it’s not likely to do anything to lower prices. If lawmakers are serious about ensuring that working people and businesses that use a lot of oil and gas aren’t harmed by rising prices, they’d raise the gas tax and make a portion of it refundable to them rather than trying to hold down prices.

Maine’s congressional delegation is supportive of bills that would require disclosure to the Commodity Futures Trading Commission of who is buying and selling energy futures. Trades on the New York Mercantile Exchange already require reports to the CFTC. However, trading on the InterContinental Exchange, where the major of oil futures are bought and sold, do not. Between 2000 and 2004, the volume of futures and options contracts traded on U.S. exchanges has increased from 600 million contracts a year to more than 1.6 billion contracts a year.

The bills would require the same reporting as now takes place on the Mercantile Exchange so that market manipulation would be easier to discover.

While more transparency may help assure the public that energy traders are following the rules, it won’t do anything to lower oil and gas prices.

The futures market is already working the way it is supposed to, says Bates College economics professor Jim Hughes. The market spreads the risk of oil price disruptions among the many investors buying and selling oil futures. The risks are high now because of wars and political uncertainty in the Middle East, the largest oil-producing region in the world.

In addition, oil supply is tight because there is currently no excess production or refinery capacity. Therefore, prices rise in anticipation of a disruption, whether from a hurricane, technical problems like the pipeline corrosion in Alaska, military action or political disagreements.

Like any other market, prices also reflect supply and demand. In recent weeks, demand for oil and gas has dropped and prices have come down. During the week ending Aug. 18, U.S. gasoline demand was 9.57 million barrels per day, down slightly from 9.7 million barrels per day the week before, according to the Energy Information Administration.

The U.S. average retail price for regular gasoline was $2.92 cents per gallon as of Aug. 21. It is the first time in five weeks that gas has fallen below $3 a gallon.

If prices get much lower, demand will increase and the cycle will begin again. Rather than lowering prices for all, raising and refunding a portion of the gas tax for fuel-dependent businesses and low-income residents would lower prices for those who most need it without spurring increased demand.