By Don G. Briggs, President – LOGA (Louisiana Oil & Gas Association)

Record high prices at the pump are causing consumers across the country to tighten their belts and change their spending habits. It’s apparent $4 gasoline is the breaking point and consumers are wanting someone to blame.

Congress is quick to come to the aid of their constituents and point their fingers at OPEC and is still working to pass the NOPEC bill out of the Senate which would allow the Justice Department to sue OPEC members for price fixing in U.S. courts under the Sherman Act, and to seize foreign owned assets to pay for damages. OPEC says demand and supply are much in balance and points its finger at the “speculators.”
According to the testimony of Michael W. Masters before the Committee on Homeland Security and Governmental Affairs: “You have asked the question ‘Are Institutional Investors contributing to food and energy price inflation?’ And my unequivocal answer is ‘yes.” Masters says, “Index Speculators are pouring billions of dollars into the commodities futures markets, speculating that commodity prices will increase.” Commodity Index Investment has risen from $13 billion in late 2003 to $160 billion in March 2008. The 25 commodities that compose the index have risen by an average of 183 percent.

Fereidun Fesharaki of FACTS Global Energy Group thinks the market has been more irrational than it has ever been in its history. “It is absolutely unprecedented and simply cannot stand … since the price hit $105, everything above $105 is speculation. Something like $50 to $100 billion has poured into the market the last two months,” Fesharaki says.

Not everyone is in agreement with the “speculator” theory. U.S. Treasury Secretary Henry Paulson said he did not think speculators were playing a major role in driving up prices. “My position, and I’ve looked at this very carefully, is I don’t believe financial investors are responsible to any significant degree for the price movement.” Paulson went on to say, “This is supply-demand, financial investors are on both sides of the market …They don’t set trends, they follow the trends.” Tan Sri Mohd Hassan Marican, the CEO of Malaysia’s Petronas told CNBC he thinks there’s only about a $15 element in the price of oil that’s due to speculation.

Why not point to the obvious and that’s “supply and demand?” If there were a sufficient supply of oil to meet the worlds demand we would not have $4 gasoline. Currently, oil demand stands at 86.4 million barrels per day, and supply is at 85 million barrels per day.

Five dollar gasoline is around the corner, so how long will it take before we stop playing the blame game and develop a responsible energy plan. It takes 10 years or more from the time of exploration to recovery. We must start now.