Think speculators cause high oil prices? Don’t bet on it — Christopher Knittel and Robert Pindyck

Image credit: Mike Derer/AP on Cognoscenti

From WBUR Cognoscenti

Americans are spending more money at the pump than ever before. According to a recent estimate by the Energy Department, the average U.S. household spent nearly $3,000 on gasoline last year. Earlier this month, the U.S. Energy Information Administration forecast that the price for regular gasoline will average $3.63 a gallon this summer — a slight decline from last summer, not far from the record levels set in 2008. Why do oil prices remain so stubbornly high?

According to some in Washington, the blame lies with “speculators” — investors who buy and sell oil futures contracts to bet on the price of oil. As they see it, these scheming speculators — which may be individuals, but can also be mutual funds, hedge funds, or other investment institutions — inject billions of dollars into commodity exchanges in pursuit of a limited number of barrels, which in turn drives up the price of oil. Speculators, critics say, rake in piles of money at the expense of ordinary people who are going broke fueling their cars and heating their homes.

Read the full post at WBUR Cognoscenti

Christopher Knittel is the William Barton Rogers Professor of Energy and a Professor of Applied Economics at the MIT Sloan School of Management.

Robert Pindyck is the Bank of Tokyo-Mitsubishi Ltd. Professor in Finance and Economics and a Professor of Applied Economics at the MIT Sloan School of Management.

 

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