Klobuchar-Franken gas speculation bill met with skepticism

Gas prices in Minnesota right now are averaging $3.70 a gallon, higher numbers that for the petroleum industry are merely a rite of spring.

People drive more as warmer temperatures arrive and oil refineries switch to new gasoline blends to comply with federal pollution-control rules. Both increase the price of gas.

Prices are up more than 50 cents from December — a bigger-than-usual rise for a new year. But that may also be related to international tensions with Iran, a major oil producer.

FRANKEN, KLOBUCHAR TARGET WALL STREET

Such explanations haven't quieted consumer complaints or kept politicians from proposing measures they say would drive down those prices. Republicans blame President Barack Obama's energy policies. Democratic Sens. Al Franken and Amy Klobuchar blame speculators in the financial markets for driving up gas prices.

At a press conference last week, Franken and Klobuchar announced legislation to combat those rising prices. Their bill asks the Commodities Future Trading Commission — which regulates oil markets — to draft rules to curb speculation.

The culprit, said Klobuchar, is Wall Street.

"The out-of-control speculation is helping push gas prices as we know to sky-high levels," Klobuchar said at the press conference.

In an interview, Franken pointed to a recent research report from Goldman Sachs that suggests speculation is contributing 56 cents to the price of a gallon of gas.

"Right now we obviously are seeing prices higher than we think they should be," Franken said.

Franken and Klobuchar met with the head of the commission, Gary Gensler, to press their case, but so far to no avail.

"I don't think he saw the price of gas right now as a market disruption," Franken said. "I think there is."

Franken and his colleagues point to increased oil production in the United States and falling demand for gasoline as Americans drive fewer miles and buy more fuel-efficient cars. They say that should add up to lower prices.

A CHILLY RECEPTION

But people who study the price of oil and gas aren't convinced prices are out of line with what's happening in the market.

"There's really is no evidence that speculators are playing any significant role in the world price of oil," said Severin Borenstein, a professor at the University of California-Berkeley's Haas School of Business. "It's the world price of oil that's driving up prices of gasoline right now."

That's because densely populated developing countries such as China and India are consuming more oil, said Borenstein, who directs UC-Berkeley's Energy Institute. There's not much Congress or the federal government can do about that, he said.

There are plenty of speculators on the oil market, but Borenstein said it's very hard for them to move prices for more than a day or two.

He also said there is an easy sign that speculators are trying to move the markets: growing inventories. That would happen if speculators were trying to take oil off of the market to drive up the price.

"We aren't seeing that now," Borenstein said.

GAS PRICES A POLITICAL FOOTBALL

Franken and Klobuchar's proposal to rein in speculators is only the latest salvo in a campaign between Republicans and Democrats to find a villain behind high gas prices.

Republicans have been blaming the Obama administration and say it hasn't done enough to open up new areas for oil exploration across the country.

"If you increase the supply, my argument is you will affect price," said U.S. Rep. John Kline, a Republican who represents Minnesota's 2nd District.

Borenstein agrees, but with a big caveat.

"Drilling everywhere would over the next decade or two add a few million barrels of oil a day to the world's supply of oil and that would push prices down a little bit," he said. "But it's not going to have a substantial effect."

Veteran oil market analyst Tom Kloza of Oil Price Information Service said rising gas prices are to be expected this time of year.

"We've seen this movie before," he said. "The difference in the movie this year is that it comes in an election year and some folks have seized on it for political opportunism."

Kloza said prices will likely begin to fall in the next few months. But in the long term, global demand for oil is likely to keep rising.

The U.S. government's Energy Information Administration forecasts that oil prices are likely to stay above $100 a barrel for the next 20 years.

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