Now, nothing sinks a president‘s approval rating faster than high gas prices.
President Obama‘s vowing to do something about it. What‘s his plan and can it work?
And now that the numbers are in, and Democrats are on the attack, Paul Ryan isn‘t sounding so tough. We‘ll tell you why he‘s backpedaling and might be in for a world of trouble.
UYGUR: In our “Rigged Game” today—we‘ve got a whole block on it—gas prices are shooting up and the president is doing something about it. The average price per gallon costs 35 percent more than it did just a year ago.
In six states, the average price already tops $4 a gallon. That‘s painful. You know what it cost me? It cost me $60 the other day to fill up my wife‘s car. I didn‘t like that.
And some people are fearing that $5 a gallon is just around the corner. That would be really painful.
So it‘s no wonder that this is an issue that the American people really care about. And that anger might have shown itself in President Obama‘s approval rating.
Two months ago, gas was at $3.16 a gallon and the president‘s approval rating was at 48 percent. But since then, gas prices have jumped 68 cents, which is a lot, obviously, and his approval rating has dropped to 43 percent.
Now, are those two things directly related? Well, of course, it‘s impossible to know for sure, but it seems like there‘s a good chance.
So, today, at a town hall meeting, President Obama announced that the Justice Department is creating a task force that will “root out fraud or manipulation in the oil markets” that could be contributing to these high prices.
Now, it will focus some of its investigation on the role of traders and speculators. However, in a statement today, Attorney General Holder suggested that no evidence has turned up yet of unlawful price manipulation.
Now, let‘s talk about whether that‘s the real problem with gas prices.
Joining me now is Tyson Slocum. He‘s the director of Public Citizen‘s Energy Program.
All right. First, I want to start with, is this a real issue? Are they on to something? Is it possible that the speculators are driving up the gas prices?
TYSON SLOCUM, PUBLIC CITIZEN‘S ENERGY PROGRAM: Oh, absolutely the speculators are driving up the prices. And all you have to do is listen to Goldman Sachs, one of the largest investment banks and one of the largest global traders in crude oil and gasoline products.
A little over a week ago, Goldman Sachs, in a communication with some of its wealthiest investors, said that speculators accounted for about $27 to $30 of a barrel of oil. That translates to about 70 or 75 cents in the price of a gallon of gasoline.
So when a speculator is saying, yes, speculators are playing a significant role in the market right now, I tend to listen to them. And the reason that the speculators—that it‘s obvious is because it‘s a disconnect between the current crude oil prices and the supply and demand fundamentals.
Secretary Chu, the secretary of energy, Steven Chu, said earlier this week—he said, the United States is awash in a surplus of oil and gasoline.
We‘ve got almost two billion barrels of gasoline and crude oil in storage in the United States, 726 million barrels of that is in the Strategic Petroleum Reserve.
Now, when I took economics courses, when you have a surplus, that has a tendency to depress prices. The fact that prices are going up shows that speculators are driving this issue. So if you‘re Goldman Sachs, you‘re making a lot of money. If you‘re a working family trying to get from home to work, or drop your kids off at school, it‘s really—you‘re dealing with a lot of hardship. And that‘s why the International Monetary Fund last week said that these sustained high prices threatened the fragile economic recovery right now.
UYGUR: Tyson, I think if a lot of Americans knew what you were saying, they‘d be quite angry. I‘m already angry.
I mean, if you‘re talking about 75 cents per gallon, that that makes a difference, that it could be that much lower, if I just got 10 gallons, that‘s $7.50 out of my pocket into some banker‘s pocket for some reason. I‘m already livid over it.
So, how does that work? I think a lot of people are probably confused about that, as to how that translates to going into their pockets. What do they do?
SLOCUM: Right. Well, most Americans think that OPEC, like Saudi Arabia or Iran or Venezuela, set oil prices. They don‘t. They try to influence prices by the amount of oil that they‘re producing and exporting to the rest of the world.
Where prices are actually set is by financial firms like Goldman Sachs, like hedge funds, and then some companies like Koch Industries, which is a major trader of crude oil and petroleum products. They do it in exchanges in New York and in another financial centers, and then they also trade in contracts on their own unregulated exchanges, thanks to a 2000 law that deregulated all of this.
And so what the Dodd/Frank financial services bill from last summer, one of the things that it‘s supposed to do is to re-regulate this trading, to bring it under the careful eye of government regulators. It also seeks to limit the positions that an individual trader can take.
Right now a company like Goldman Sachs can sometimes control half of all the outstanding contracts in crude oil. That‘s not competition. That‘s a single company exercising market power.
So what we need to do is to rein in the speculators, reduce the levels of excessive speculation, and that‘s going to bring prices down around 70 cents a gallon. And that‘s going to bring the relief that we need to working families.
UYGUR: Well, Tyson, the Republicans say the opposite. They say, look, here‘s how you solve this—you do less regulation, let the speculators speculate all they like, and let them drive up or down the price, and then if you just do a little bit more drilling, we‘ll be set.
Why do you think that‘s wrong?
SLOCUM: Because it‘s false. You know, we‘ve got Representative Frank Lucas, a Republican from Oklahoma, who‘s introduced a bill, HR-1573, that would deregulate a big chunk of the Dodd/Frank Financial Services Reform Act, which is popping champagne corks on Wall Street right now if this were to pass, because this would do away with these proposed regulations over energy trading, giving huge, new opportunities for Wall Street to keep driving up the price of oil.
And the argument that all the United States need to do is open up new areas to drilling and that will produce prices, that‘s also false. The Bush administration, in 2007, ordered the Energy Information Administration, which is the statistical branch of the Department of Energy, to take a look at, let‘s say we open up all offshore areas to new drilling off the Atlantic Coast, every area in the Gulf of Mexico, California, Alaska, we open it all up to oil drilling. The EIA, the Energy Department, found it would have an insignificant impact on reducing prices and on reducing imports because the United States is not Saudi Arabia.
We only sit on 1.5 percent of the world‘s oil. It is impossible for us to tap into that very small pool of oil and bring prices down by ramping production up.
That‘s why, after the BP disaster that started last year, when Obama had to do a moratorium on deepwater drilling, oil prices did not go up, because all the traders knew that you can‘t send prices up for an area that is not a significant source of global oil and gas production. So Republicans saying that we need to deregulate is really harmful, and their argument that we need to drill more is just ludicrous.
UYGUR: Well, you know, we did a “Rigged Game” segment here. Maybe we should have done a “Con Job,” because as they blame the president for the high gas prices, they deregulate the speculation, allowing for much higher gas prices, and then go, ha-ha, and just blame the Democrats for it. It‘s an unbelievable con job.
But the last thing here, Tyson, any chance that this commission or whatever he‘s going to put together, the president here, that it helps? I mean, are they really going to get tough on Goldman Sachs?
SLOCUM: Well, we have to. You know, definitely investigating whether or not the lack of regulation is encouraging collusive or anti-competitive behavior, the Department of Justice ought to be taking a look at that.
But we can also address this by the president and Congress sending clearer instructions to the agency that regulates these markets, the Commodity Futures Trading Commission, to say, look, you‘ve got to enact tough position limits that limit the ability of a Goldman Sachs to control a big chunk of the market, because a company that controls a big chunk of the market, that means you have an uncompetitive market.
We‘ve got to make sure that every trade in crude oil and gasoline is conducted in way that is fully regulated by the federal government, because when we‘ve got regulators looking over the shoulder of—whether it‘s big oil or big banks, that‘s a good thing.
UYGUR: I‘ll tell you what, man. If he did real regulation, and it stopped the speculation, and gas prices dropped, then you‘ve got an easy re-election. So I would think that he would be motivated. Let‘s see how it turns out.
Public Citizen‘s Tyson Slocum.
Thanks for joining us tonight. We appreciate it.
SLOCUM: My pleasure.