Just a quick glance at the headlines will tell you all you need to know about high gas prices. Senate Dems aim to stop oil speculators, Stop the oil speculators, These Are the Folks Behind the Price Spike.

Yep, it's pretty clear that all of our energy woes can be attributed to a small group of evil speculators who are driving up the price of gas. They must have made a fortune when the price of oil spiked $16 a barrel just Friday to $139 (an entire barrel of oil was going for $11 in 1998).

Well, actually... reality is slightly different. In fact, reality is pretty much the opposite of what the media and politicians are telling you.

Those Evil Speculators

Traders said many speculators had been betting on falling oil prices ahead of last week's jump of $16.24 in less than 36 hours to a record $139.12 a barrel by Friday. Caught in a wrong bet, they had to buy back their positions on Monday.

Nymex, the commodities exchange, revealed that the number of outstanding contracts - or open interest - in key oil futures declined on Friday. This was a sign that speculators were buying back previous money-losing positions - or short-covering - rather than adding fresh bets on rising prices.

For those of you who don't understand how "shorting" a market works, speculators borrowed money in order to sell an asset, thus they tried to force down the price of it and buy it back at a lower price later on. Or to put it simply, speculators were betting their own money so you could get cheaper gas.
However, the price of oil went higher anyway, thus forcing the speculators to buy back their positions early in order to avoid taking even larger losses. That made the price of oil spike even higher.

But this is just a one day thing, right? Wrong. Speculators have reduced their exposure to the energy markets by 80% since last July.

So-called speculative net long positions fell to 25,867 contracts on the New York Mercantile Exchange in the week ended May 27 from a record 127,491 on July 31, according to a U.S. Commodity Futures Trading Commission report on May 30.

This is most likely caused by hedge funds taking huge losses in the mortgage-backed securities market. When you lose big in one area you have to sell your winners to pay for your losers.
Either way, speculators started selling into the energy markets right when crude prices began to spike. Thus not only are speculators not driving the price of gas up, they are actually doing their best to push it down (and failing).
That hasn't stopped Congress from going after the speculators.

McClellan said. "Let's go in and take the hedge funds and the index funds and say, 'No, you can't have 5,000 or 10,000 contracts per account or whatever it is. We're going to cut that speculative power back. You can only trade 2,500 contracts and force a liquidation to get that speculation back in line,'" he added. "Those are some of the scenarios going around."

Congress, led by Joe Lieberman, has gotten so eager to "do something" about energy prices that they are considering going after pension funds. I guess since speculators are nearly absent from the energy market, the politicians and media are forced to create bad guys to attack. And your pension fund is to be the sacrificial lamb that must be slaughtered for the "greater good".

Uh, hold on a second. Time for a reality check.
Before we gut the pension funds of middle class America in a futile and misguided effort to bring back cheap gas for SUVs, has anyone considered going after the real reasons for high gasoline prices?
Even Treasury Secretary Henry M. Paulson says the problem is supply and demand. I'm no fan of Paulson, but since worldwide crude oil production peaked in 2005 while the economies of countries like China and India are growing at 7-10% a year, he might have a good point.

It really doesn't matter if you force every last speculator out of the energy markets (including the ones that are shorting the price of oil), if supply can't meet demand then prices are going higher. It's really as simple as that.
No amount of crude oil futures contracts are a substitute for the real thing.

Those Evil Environmentalists

The favorite reason for Republicans is that environmentalists are stopping us from drilling for oil. The best example is opposition to allowing drilling in the environmentally sensitive ANWR. What Republican voters are generally ignorant about is a far less environmentally sensitive region just 100 miles west of ANWR called the National Petroleum Reserve.
The Carter Administration directed the BLM to conduct oil leasing in 1980, but it took the Clinton Administration to actually open up leasing in 1998.

How much oil is in ANWR? No one really knows for sure, but the latest estimate is between 5.7 billion and 16.0 billion barrels within the 1002 area.

One thing you don't hear much about in this discussion: there's another bigger chunk of land in Alaska that since after World War I has been set aside specifcally for oil exploration.

The National Petroleum Reserve in Alaska is about 60 miles West of Prudhoe Bay and has actually seen some exploration and production.

How much oil is in NPRA? According to the latest study between 5.9 and 13.2 billion barrels , but again you can't really tell unless you start to drill.

Given that Republicans have been trying to open up ANWR for about a decade now, you would think that they would be exploiting the NPRA as fast as they could, right? You would be wrong.
The Bush Administration didn't act on the NPRA until 2005, and when he did he decided that all 23.5 million acres had to be exploited. The Interior Department wanted to set aside just a tiny sliver of 800,000 acres for environmental reasons. Thus the Bush Administration forced another legal confrontation with environmentalists for no apparent reason other than to maybe score some political points with his base, and delayed drilling in the entire region for another three years.

If we can gather any lesson from the NPRA experience, the Bush Administration and the Republican base is more interested in having confrontations with environmentalists than in actually drilling more oil.

Those Evil Oil People

And don't bother blaming the poor gas station owner. The high prices are forcing them into bankruptcy.

Pennsylvania-based Uni-Marts, which owned or supplied 283 convenience stores and gas stations, filed for Chapter 11 Bankruptcy Court protection in late May, saying its cash reserves were drained by fuel costs.

"The number of retailers on the brink of bankruptcy is now at a dangerous level," said Bill Douglass of Sherman, Texas, who owns 15 convenience stores and supplies fuel to 150 independent retailers.

"In the past four months, 10 of the dealers to whom I supply motor fuel have relinquished to me the deeds to their businesses," he told Congress last month.

If it isn't the retailers, then it must be the refiners, right? Wrong again.

So if you are to look at the crack spread, i.e. how much the refineries make on a barrel of oil and turn it into a barrel of gasoline, they are making like $5.00 per barrel this coming summer and like $1.00 per barrel for this coming winter. Of course, this is all subject to change. But geez, if you’re a refiner you might as well go take a vacation and wait until it’s more profitable.

Therefore, something has to give. Either gasoline prices need to spike more than oil prices have in the coming months or oil prices need to fall much more than gasoline need to. OR else, we will face a gasoline shortage this summer as refiners all go on vacation and stop making gasoline.

Let's Get Down To the Real Reasons

So if the problem isn't speculators, environmentalists, refiners or gas retailers, and the problem is supply and demand, why is this happening?
Could it possibly, just maybe, be because we bombed, invaded, and unleashed a civil war in a major oil exporting nation?

Why YES! That would make sense! The bullsh*t war that Bush and the Republicans got us into would in fact go a long ways towards explaining why oil prices are so high.
In fact the answer to the question is so damn obvious that it boggles the mind that the media and Congress are still creating fictional strawmen in the form of non-existent speculators to cut down rather than tackle the real issues.

Iraq oil exports 2001: 2.1 million barrels a day
Iraq oil exports 2006: 1.49 million barrels a day

On the other hand, it makes perfect sense that the media and Washington would try this clumsy sleight-of-hand to distract the public from the real causes. After all, we've seen this game before - in the lead-up to the invasion of Iraq.
Remember when the Bush Administration morphed our enemy Osama bin Laden into Saddam Hussein? And who led the charge on the Democratic side? Why Joe Lieberman yet again. Meanwhile the media did the cheerleading and the legwork to get the neocon message out to the public, just like they are today.

It's the same script with the same players all over again.
First they lied to get us in a war. Now they are lying about the consequences.

Of course, the mess we created in Iraq isn't the only reason for high gas prices. Ron Paul explains another important reason.

When the Federal Reserve inflates the dollar as drastically as it has in the past few decades, the first users of the newly created money go in search of investments for their dollars. They must invest this money quickly and aggressively before it loses value. This causes certain sectors to expand beyond what would naturally occur in the free market.

This is why pension funds are currently investing in commodities when they have traditionally invested in boring things like treasuries. The Fed has dropped interest rates down below the level of inflation, thus making treasury bonds a money-losing investment.
As the dollar falls the price of everything imported must eventually rise, including oil.

So why is the dollar falling? Well, spending $720 million each and every day on the Iraq war certainly doesn't help. Rising price inflation, low yields on dollar assets, and a massive implosion in the real estate market all contribute as well.

It's no secret that the most recent spike in oil prices happened at the same time that the credit crunch hit and the Fed started slashing interest rates and bailing out the investment banks.
(Speaking of bail outs, the Federal Housing Administration, the agency that the Bush Administration has been using to bail out the real estate market, is looking at a $4.6 Billion loss. And you didn't think we were bailing out the real estate speculators, did you?)

So why are we hearing about evil speculators and not about the falling dollar?
Because the falling dollar leads us right back to the same culprits - the Bush Administration, Congress, the media, and the Iraq War.
Once again the public is being distracted by imaginary enemies from the real f*ck-ups.