Wall Street has been cooking with gas prices

What’s up with gasoline prices going down?

Gas prices have fallen about 21 percent in the last six months. That means, if prices hold at this level, Americans will save around $100 billion a year on fueling their cars — money that can now be spent on Christmas gifts or food or on a face-lift for Grandpa.

But in our joy over cheaper gas, there is one big question left unanswered: Why didn’t prices fall years ago?

I’ve been writing about this subject off and on since the economy collapsed in 2007 and gasoline prices didn’t. The law of supply and demand was being broken and someone — I believe — should go to jail.

Americans used 7 percent less gasoline in 2013 (the latest figures) than they did in 2007, yet the needle on gasoline and oil prices remained stuck in the “excessively high” position.

OPEC wasn’t the cause. Middle East oil producing countries didn’t cut output when the world economy was sinking. In fact, OPEC nations, concerned about their revenues, kept the spigot near fully open.

And despite the fact that gasoline producers were benefiting from these high prices, you really couldn’t blame them either. Sure, they took refineries offline for suspicious “repairs” whenever prices weakened, but all in all there was plenty of gasoline to go around.

In fact, the only gasoline shortage we’ve seen in this generation came when Hurricane Sandy made it impossible for gas station pumps to work in the Northeast.

So why did prices stay stubbornly high? And why have they now come down?

Well, as I’ve been saying for years, it’s all Wall Street’s doing. More precisely, it was the fault of energy traders around the world, who knew they could “talk” prices higher almost any time they wanted.

Traders managed to keep energy futures contracts elevated even as demand for fuel worldwide was collapsing because of the weakening economies everywhere from China and Japan to Europe and the US.

Wall Street always had an excuse as to why the world would be short oil and, therefore, gasoline. The excuse most relied upon was that a billion Chinese — the convenient excuse whenever you wanted to pretend there would be
shortages of anything — would suddenly get off their bikes and into cars.

Second excuse: The world economy would certainly pick up strength soon and people would return to normal patterns of gasoline use — meaning they would waste as much fuel as they always have.

The third excuse was more of a theory. It was called “peak oil.” That’s some smart guy’s way of saying that eventually the world would hit its maximum level of extracting crude from the ground and that prices would have to soar.

Goldman Sachs, in fact, predicted a super spike in oil prices to $200 a barrel in 2008 (right when gasoline use was collapsing) and only two years ago started predicting oil and gas prices would fall.

Those predictions, of course, were wonderful for Wall Street, because the higher oil and gasoline prices went, the more money speculators could make from trading these commodities. It was fish-in-a-barrel investing. And consumers were the fish.

The ease of getting energy prices higher was, of course, bad news for people like you and me, who had our take-home pay depleted every time we filled the car.

So why is Wall Street now losing and consumers winning? Why did gasoline and oil prices suddenly collapse?

Because, despite Wall Street’s best efforts, supply and demand won out. And there’s a huge irony in the fact that pure demand and supply (the need for oil versus the world’s ability to provide it) has taken over the marketplace at a time when the Middle East — the region that produces much of the world’s oil — is at its most chaotic.

What the “peak oil” crowd on Wall Street failed to realize was this: There is plenty of oil in the world.

Oil that’s released from the ground using a controversial technique called “fracking” has changed the supply/demand equation in the US, where production has increased tremendously in the past 10 years.

Wall Street knew about fracking more than half a decade ago. Hell, I knew about it and I was barely paying attention!

Back in 2008, I visited with then-Montana Gov. Brian Schweitzer at his office in Helena. The governor quoted me the numbers — there was a ton of oil under his state and (most important) the citizens of Montana would be happy to have the oil industry come and get it.

And I also learned there was plenty of oil in Africa when I was wandering through Uganda back in 2006. There’s plentiful oil beneath most African countries even today that has barely been touched.

That’s the supply side.

The demand side is even better for consumers. Because of new technologies like hybrid fuel engines, cars are using less gasoline. And if electric and hydrogen cars become more affordable, the need for gas will go way down.

Do you want $2-a-gallon gasoline in this country? All Washington has to do is talk about a concerted effort to get automakers to produce more alternative-fuel cars.

Want $1-a-gallon gas? Have our politicians work with automakers to make the revolution in car technology actually happen.