We've told that higher gas prices are the result of increased global demand, but is that true?
Many have cited increased world demand for oil as the reason gas is now hovering around $4 a gallon across most of the country, but a former Senator says that speculation in commodity markets is actually the cause of higher prices.
Former Senator Byron Dorgan, who helped shape the nation's energy policy during his time on Capitol Hill, says that the recent spike to $4 gas is not a matter of supply and demand, but rather due to excess speculation in commodity markets.
"There is no justification for the current gas prices,"¯ Dorgan told Yahoo. "This is all about speculation by the people who are speculating on the price of oil and gas."¯
Dorgan says the U.S. government should "shutdown excess speculation in commodity markets"¯ to keep a lid on gas prices, and his counterparts in Congress seem to agree. More than 70 members of Congress recently wrote a letter to the Commodity Futures Trading Commission urging the commission to curtail oil speculation by establishing "strong position limits" and to "utilize all authorities available to"¦make sure that the price of oil and gasoline reflects the fundamentals of supply and demand."
Fadel Gheit, senior energy analyst at Oppenheimer, says that the current speculation system is tacking on at least $20 to a barrel of oil. And Gheit's is a fairly conservative estimate - Rex Tillerson, CEO of ExxonMobil, estimates that speculation could be propping up oil prices by as much as 40 percent.
A reform of some kind is clearly needed, but economists at IHS warn the government should tread lightly. Limiting commodity trading could raise prices in other sectors, thereby offsetting any savings gained by lower prices at the pumps.