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Curious Why Oil, Gas Prices Are Rising So Quickly

By David Wade, WBZ-TV
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(credit: AP)

(credit: AP)

WBZ-TV's David Wade David Wade
Multiple award-winning journalist David Wade co-anchors WBZ-TV News at...
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BOSTON (CBS) — Oil and gas prices have been climbing hitting us all in the pocketbook. By why is that happening? Is it as simple as the law of supply and demand, or is something more happening.

Arthur in Acton Declared his Curiosity saying: “It’s the investors boosting the price of crude.” And Jay from Litchfield agrees writing: “Speculation is a main factor.”

Well, the federal government is supposed to limit speculation, but so far it hasn’t.

A lot of buying and selling of oil happens on the trading floor, with investment houses, banks, and pension and hedge funds all betting big on oil. They’ll never see the oil they buy and sell. They’re trading paper. It’s not energy, it’s a financial instrument.

“It’s a gambling casino without regulation,” says Sean Cota, the president of the Petroleum Marketers Association which represents gas stations and heating oil dealers.

“They’re going to play the market as much as they can for as long as they can until people say they can’t do it anymore,” says Cota.

WBZ-TV’s David Wade reports.

And we all feel it at the pump.

The unprecedented upheaval in the Middle East and northern Africa has taken the blame for price increases, but the fact is, there’s been no major change in supply. Other nations are pumping more, making up for the small amount that’s been lost.

Some financial institutions say the run up in oil prices is a function of free market forces — sometimes oil is up, other times down. But a majority of the U.S. Congress didn’t see it that way last year. That’s when it passed, and the President signed, the Dodd-Frank Act, a sweeping financial reform law that called for new regulations that would control some of this speculation and moderate large price swings.

The “Frank” in Dodd-Frank is Barney Frank.

“There are several things in there which if they are fully implemented, will slow down speculation,” says Congressman Frank.

But the Dodd-Frank regulations have not happened. The federal agency given the task of creating the regulations hasn’t been funded. Congressman Frank blames the Republicans in the House of Representatives.

“It’s their budget. We need to get that money and we need to get those rules promulgated so we can restrain the extent to which speculation drives up prices,” he says.

While no one can put a definite number on how much the investment game costs consumers’ budgets, we do know that more often than not, a majority of the oil traded is bought and sold by investors, not oil companies.

And don’t expect a solution soon. About a week ago, the agency that’s supposed to create the rules limiting oil speculation canceled a meeting that could have moved regulations forward. When we asked them why, they did not respond.

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