Pearlstein: Oil and Gas Prices

Steven Pearlstein
Washington Post Columnist
Wednesday, May 7, 2008 11:00 AM

Washington Post business columnist Steven Pearlstein was online Wednesday, May 7, at 11 a.m. ET to discuss what to do about soaring oil and gasoline prices.

About Pearlstein: Steven Pearlstein writes about business and the economy for The Washington Post. His journalism career includes editing roles at The Post and Inc. magazine. He was founding publisher and editor of The Boston Observer, a monthly journal of liberal opinion. He got his start in journalism reporting for two New Hampshire newspapers -- the Concord Monitor and the Foster's Daily Democrat. Pearlstein has also worked as a television news reporter and a congressional staffer.

Pearlstein was honored with the Pulitzer Prize for commentary for his columns about mounting problems in the financial markets. His award was one of six Pulitzer Prizes won by The Washington Post this year.

Read Pearlstein's latest columns.

A transcript follows.

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Great Falls, Va.: I'm usually a big fan, but today's column was just lukewarm.

1. Challenge the price fixing rules at the WTO. Good idea.

2. Employ Enron traders to monitor the filling of the strategic reserve. Not a serious proposal. Enron's good traders are making eight figures at Centaurus or other hedge funds -- why would they take a government job? And Enron wasn't really all that into oil trading anyway -- mostly gas and power.

3. Close the Enron loophole. Fine as far as it goes. I think you and the Democratic leadership will be surprised at how little this accomplishes, but it's worth doing even for a small benefit. Most of what's unregulated at this point is just bilateral contracts -- long term commodity supply agreements, swaps to hedge risk, etc. The allegations against Amaranth are that it took certain dodgey actions because it WAS subject to regulation, not in connection with the Enron loophole.

Steven Pearlstein: Hey, you can't hit doubles and triples all the time...

I'm not sure I agree about the Enron traders. We can surely pay them as much as they are making now, on some sort of incentive basis. And I think there would be guys (they are mostly guys) who would love the task of making life difficult for the financial investors in commodities, so they come to understand that oil futures are not a one way bet. There's a strong bias now in the market on the long side, which is even stronger than when Keynes wrote about it, and it is affecting prices as well as the efficiency of the futures market for the people who really need it -- those who actually produce and use the stuff.

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Washington, D.C.: What to do about soaring gas prices? Nothing. Compared to other industrialized nations (including some who are energy independent), gas is very cheap in this country. Further, the best way to get people to change their behavior and adopt more energy-efficient (and environmentally friendly) ways is to have them pay more if they don't change their behavior. I think gas taxes should be raised, but at the very least, taxes should not be lowered.

Steven Pearlstein: This is the standard environmental argument, and I agree. Best of all, raising the tax gradually will have the effect of lowering the rents collected by the oil industry, since not all of those taxes will wind up being paid for by consumers. Some of it will be passed back to producers.

How do we know this. Well, standard economic theory is one source. But the even more reliable indicator is that the oil industry goes ballistic anytime anyone suggests raising oil or gas taxes, and you can be sure they are doing that not because they care about their customers but because they know it will cut into their monopoly profits.

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Oak Hill, Va.: A boycott??? Are you serious? Who do you think your proposal would hurt? Not big oil but the independent dealers who are barely getting by and make most of their money from inside sales, car washes, etc.

Would overall sales go down?? Probably not, people would simply fill up before the boycott and re-fill afterwards and the independent dealers would lose their coffee and lottery sales.

Get out and learn about a business before you pontificate.

Guess they pass out Pulitzer's for non-economic reporting!!!

Got the guts to respond?

Steven Pearlstein: First of all, Mr. Independent Dealer, I suggested a boycott grounded in not using much gasoline for a week. So that lowers demand, not just shifting it in time. Walk to work, save a gallon, that sort of thing.

Second, it will hurt the independent dealer. And I certainly don't blame the independent dealer for this problem -- no way. But at the same time, rising prices probably add a bit, a small bit, to the profit margin of independent dealers. So there's a little margin to play with.

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Arlington, Va.: Steven,

A bit over 2 years ago (Apr 26, 2006), on a discussion like this, in a response you said:

"What is it with you peak oil people. Its like scientology."

...equating the notion that people who have studied the oil reserve and extraction numbers and posit that we are very near or at the world's peak production capacity with those followers of a religious cult.

I was just wondering if you still hold this opinion ?

washingtonpost.com: Apr. 26 discussion

Steven Pearlstein: Fair question, but no, I haven't changed my opinion. Over the long run, I don't think we're going to run out of oil. And that's particularly true if oil is priced at $120 a barrel rather than $25. You can imagine how much more creative people can get in finding and extracting oil at that price. And you can imagine that, over the long run, it will dampen demand. So let's let the market forces play themselves out, shall we, rather than declaring victory for the neo-Malthusians.

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Richmond, Va.: Thank you for taking our questions and for your willingness to share your thoughts and experiences.

Gas going to $4 or higher sure is a pain. But...isn't this simply a great equalization of years of CHEAP gas? And for having cars getting 25 mpg when we could have easily been getting 50+ today had we geared up for it years ago? I won't get elected for ANYTHING for saying this, but I feel the increase in the long run will be good for us. It will cause needed shifts. Your thoughts?

Steven Pearlstein: Again, I'm not against the idea that our gas was too cheap. But let's let the price rise in a more gradual way, so it doesn't cause such hardship and economic damage. And let's do it through taxes so all the benefit of higher prices doesn't go to price fixers and their free-riding friends.

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Adams Morgan: Articles about the cause of the increase in oil prices often list increase in oil demand in places such as China as one of the many factors. The price of oil has had a negative effect on our economy. Will the higher oil prices affect a developing economy like China's even more dramatically?

Steven Pearlstein: One would hope that the higher price of oil in a rapidly developing country would spur them to develop their new industrial infrastructure in a way that is much more energy efficient than our much older infrastructure. So I think it may have an effect on the character of their development, but not the pace of it. That's just a guess. But remember that can cut both ways. It would mean they become even more reliant on coal than we are, which would be a bad thing for global warming, or it could mean they are more reliant on nuclear, which I think would be a good thing because it helps takes the pressure off climate change.

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Columbus, Ohio: Hello Steven!

Why couldn't we regulate the oil companies as we do the utility companies? Electric, gas and water are all deemed necessary, if not required for a stable society. Their profits are determined ahead of time, and reasonable. Oil is and has become as important as those basic utilities and we need to reign them in under the same rules and regs as our utilities.

Thank you,

Marc

Steven Pearlstein: Its an international business dominated by state-owned oil companies or state-owned oil reserves and multinational corporations. Don't think national regulation is going to do much good and could do some harm.

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Los Angeles.: It's easy to understand why OPEC members would want to still have oil left after everyone else has run out, rather than help U.S. consumers drive their kids to soccer in gigantic SUVs today. Similarly Iran trying to switch to nuclear generation for domestic needs to preserve more oil to sell to others later. The U.S. should think about getting into that position, too, and leave the Alaskan oil where it is -- if it's valuable now, think how valuable it will be in 50 years. It may be that Bill Gates and the U.S. Air Force will be the only people able to afford any oil while the rest of us walk or drive our electric cars no more than 20-?] miles a day. (That will be an ugly transformation, much more so than the "inconvenience" you choose to describe it as, but that's a different issue. I'm glad I'll be dead by then.)

I don't think we can pull off some sort of boycott against OPEC. Sure, we can A-bomb them to destruction. But with their resources and lack of democracy, they may well be able to ride out our boycott and change their allegiance to China. And then what do we do for energy, given that our cities, our food supply, our lives, depend on using more of it than will exist in 50 years? Just because the rest of the world will also face this problem doesn't make our situation any better.

Steven Pearlstein: I don't think we can do much damage to OPEC through a boycott, I agree. It's largely symbolic, but if everyone did forego using gasoline for a week, it would have an effect on demand, which would take some pressure off pricing. Of course, OPEC could respond by reducing supply and try to negate that effect. One other benefit of a boycott is that it might chase away a few people speculating that gas prices will go to $4.50 and $5.00 a gallon, because we know that when lots of people speculate in that direction, it has something of a self-fulfilling quality to it.

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Atlanta, Ga.: It is a bit deceptive to talk about Enron the way you did in your column. They might have been manipulating the markets, but they were doing something legal. When the markets in CA were set up, many in the industry told the state that the markets were going to be manipulated and told them how. The state decided to ignore this advice. So then the markets acted exactly as they should have, given the rules in place.

It's not that easy to manipulate the market, but when you are told basically that it's okay (given the rules) as a trader, you are going to do that.

No affiliation with Enron, by the way. And not a trader.

Steven Pearlstein: Hey, I wasn't making legal or moral judgments. I was just noting how good they were at market manipulation, and thinking how great it would be if they did it toward some better purpose, like taking some of the air out of the speculative bubble and getting the government its strategic oil at the best price.

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Atlanta, Ga.: No, global warming is not conclusive. Yes, there are some places where the temperatures have been rising, but it is in no way conclusive that we had anything to do with it. In fact, I find it a little bit arrogant to think that we could have anything to do with it.

The science is not there - there are plenty of places you can go to check and see where many scientists (including the founder of the weather channel) have come to say that there is no science behind this idea.

Steven Pearlstein: We'll just agree to disagree on that one. I think the rest of the world has moved on to the question of what to do about global warming, rather than debating whether it exists or not.

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Washington D.C.: We haven't had a new refinery built in some 20 years I heard a news report say the other day, but I know of at least three that have closed, and others whose expansions were resisted by local communities. What's the deal? There's lots of empty space in the SW, why not combine solar and refining to increase efficiencies?

Steven Pearlstein: I'm with George Bush on this one: let's build some refineries on old military bases. The law is already there. What's the problem? Surprise! The oil companies and independent refiners just aren't interested. Why do you think that is? One good reason is that the most efficient way, financially and politically, to get incremental increases in output is to expand or improve the efficiency of existing refineries. One bad reason is that they have an unspoken but very real collaboration NOT TO BUILD NEW REFINERIES so they can keep prices up.

In fact, I think we need to consider going George Bush one farther and have the government build a refinery or two if private industry won't. Put out an RFP for someone to build and operate. And that way, the government could help smooth out gas prices, producing all out when prices are high, and build up reserves when prices are low. If I'd had time and space, I would have included that idea in this morning's column as well.

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McLean, Va.: The issue surrounding the filling of the SPR is fascinating to me, and I think there are legitimate arguments on either side. President Bush seems to think (though he probably wouldn't say it this way) that the policies underlying the SPR are more important than the effect it's having on oil prices. Your column seems to contend otherwise -- that we can live with the SPR being somewhat less than 100% full if it helps moderate oil prices. I don't know the answer, but I think this is an important discussion to have. We need to look at the issue in the context of the circumstances in which the SPR would be used, not in the narrower context of how much it costs us to drive to the beach.

On the other hand, the Bush administration was being condemned (including by Phil Verleger, whom you quoted last week) 4 months ago for continuing to fill the SPR while oil was at $90. With the benefit of hindsight, we can now see that was a bargain!

Steven Pearlstein: I think we can have a policy of wanting to fill the reserve over the medium to long run while, at the same time, using the process and the mechanism to take some of the air out of the speculative bubble by occasionally driving down futures prices. What would that do? It would remind the speculators and financial investors that oil futures are not a one-way bet.

Consider this: if every time there was a temporary disruption in supply, like we now have in Nigeria, the U.S. government would announce that it would suspend purchases, it might dampen the market effect of those events.

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Germantown, Md: Over the past 10 years, George Will was notorious for pointing out that gas prices, till recently, weren't even close to the inflation adjusted record prices of the late 70s. Now, however, gas prices are comparable to that record. Have American consumers benefited from lower-than-inflation gas prices as much, or maybe even more, than inflated home values? And what does that mean going forward for consumers and the economy if there is now no "discount" on gas prices, especially with house values plummeting?

Steven Pearlstein: I think you are bringing too much judgmentalism to a topic that is really just economic. There is no "right" price for gasoline or oil, so there is no price that is "too high" or "too low" if it truly reflects fundamentals. My problem with current pricing is that it is artificially high because of a speculative bubble. That's not good. And I suppose you could say that gas prices are too low if they don't reflect the "externalities", or uncaptured costs to the public, caused by pollution or sprawl. But the problem with your analysis is that it somehow assumes that there was once some neutral, equilibrium benchmark that was the "right" price, against which we should measure all prices that come after that. That doesn't sound right to me.

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New York, N.Y.: Steve,

Nice column, but, getting "tough" with OPEC might sound macho, but it really isn't going solve anything in the long run.

Unfortunately none of the candidates have really said what we need to hear: we're addicted to foreign oil and we won't be able to get unhooked unless we really restructure the way we live. We've got to invest in alternate energy forms (even nuclear!!!), encourage carpooling, raise gas taxes and look for more domestic oil.

Most importantly, if we can get off our foreign oil addiction we won't have to coddle our so called "moderate Arab allies," who have promoted and encouraged all forms of terrorism.

Thanks!!!

Steven Pearlstein: Thanks. This is, as I said, the standard environmentalist line, which is that our problem is mere addiction to oil. That's a problem, but not the only problem. It's also a problem when a cartel engages in price fixing of a key input to the economy, and I don't think we should be cheerleading for price-fixing just because it helps further some other goal. Market economies work best when prices reflect open competition, and if it turns out that the truly competitive price for oil or gasoline is lower than it is now, then that is where it should be. I don't think you want to be in the position of cheer-leading for what is becoming one of the most massive and undeserved transfers of wealth in human history, which is what is going on now, from oil consumers to oil producers. That's taking your environmentalism one step too far.

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Arlington, Va.: We reaping what we have sown by creating sprawling "communities" that rely so heavily on vehicle travel. Nothing should be done about high oil/gas prices since that will (hopefully) lead to further advancement in alternative modes of transportation, better designed development, and alternative energy generation. Additionally, there are reports that our consumption doesn't have as much effect on prices as it used to anyway, due to growing demand in other parts of the world.

Steven Pearlstein: Again, the environmental view.

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Wilmington, N.C.: My question re gasoline prices: the candidates are suggesting lifting the federal tax this summer to help citizens cope. The Obama camp, along with 230 economists including Nobel Prize winners, say it would not be economically helpful in the long run. My question is what if the tax was lifted only on diesel?!

It would immediately help small business trucker owners and might it change the costs of foods and other retail products by decreasing transportation expenditures? Thank you very much for considering my question!

Steven Pearlstein: Might be a good idea, but I doubt it. It might just change the incentives of refiners as to how much diesel they produce versus how much regular gasoline. That's a complicated bit of business that I won't pretend to understand.

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West Chester, Pa.: Middle class wages have been stagnant over the past decade, housing prices are plunging, and the price of oil is making everything -- but particularly gas and food -- more expensive. Where do these optimistic economists (who think any recession will be short and mild) think economic growth will come from given these existing conditions?

Steven Pearlstein: Good question, West Chester, Pa. Exports and tech is their short answer.

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Greenbelt, Md.: You article makes me believe that you've never heard of Matthew Simmons or peak oil, and that you are as in deep cultural denial as most other citizens. Riding a bike to work is painful and inconvenient?

Steven Pearlstein: Many people would consider it inconvenient, yes.

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St. Mary's City, Md.: I would have expected gas prices as high as $3.50 to lead to a depression, even after taking into account the historical rates of inflation. Even if that doesn't occur, I would expect the prices to widen the gap between rich and poor. Are these reasonable expectations?

Steven Pearlstein: Rising gas prices are highly regressive, that is for sure.

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Arlington, Va.: In your OPEC article this morning, you wrote, "Instead of driving, let's try walking, bicycling, carpooling or taking public transportation for a week, or working from home some days."

I'm actually trying to do that already! The only time I drive now is to and from work, and even with that I'm trying to find people to carpool with. I've also taken to cutting down travel as much as possible.

And when it comes to doing groceries and such, I've begun walking to and from Giant. It's a mile and a half one way, and while it may not save me THAT much in gas money, it's at least a good start--and I get great exercise, too.

Steven Pearlstein: So you're already doing your part. Now the rest of us should join you, starting with one week each quarter. And maybe some of us will find it's not so inconvenient after all and do it more often. You never know...

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South Range, Wis.: With alcohol being the most likely intermediate source of fuel for our cars that promises to alleviate our oil addiction and stop the petro dollars from flowing out of the country, how can we go about fighting the oil industry propaganda that is being circulated and parroted by an ignorant media.

Alcohol is our best hope. Ask Brazil or Michael Blume, author of "Alcohol Can Be A Gas."

Steven Pearlstein: Ethanol is like alcohol. And as the media have been reporting for many years, it can be produced from sugar cane as well as from corn, or from switch grass and other natural stuff. Why do you think the "ignorant media" has been falling for "industry propaganda?"

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State of Denial: Dr. Pearlstein,

You were critical of McCain and Clinton for proposing the gas tax holiday. But, wouldn't that stimulate demand and doesn't increased demand lead to more supply ? Isn't that how economics works? If we really show that we will do whatever it takes to use as much product as can be extracted, then wouldn't they turn on the taps in Texas and Saudi or Bulgaria or wherever they have this oil stuff we need? That would be rational, no?

Steven Pearlstein: No, increased demand doesn't lead to more supply in the oil and gasoline business, for all sorts of reasons, including that there is an oil cartel. So that is the problem: it leads to higher prices.

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Baltimore, Md.: Steve: I heard on the news this a.m. that some market watchers are saying that oil will reach $200 a barrel. If that happens, won't it trigger near economic paralysis in the U.S.?

Thanks.

Steven Pearlstein: You'd think it would be a real depressant to economic growth, wouldn't you.

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Richmond, Va.: Okay, Mr. Pearlstein, you have told us that the oil companies cannot control the price of oil, and I, for one believe you, so, if that is true, what market conditions in the world will stop the rise in oil prices -- or will the price just keep going up forever? In other words, if most of the world's economies sink under the weight of rising oil prices, is there a point when the rise will damage even those who are reaping the obscene profits from these prices?

Steven Pearlstein: Yup. Which is why OPEC used to be concerned about pushing prices up too far too fast. But apparently they now believe that their earlier caution was unwarranted, and are happy to see how high they can go before industrial economies come crashing down. In their favor, they do realize that some of the current runup is the result of speculation and will go away once the bubble bursts.

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Columbia, S.C.: I get so frustrated with debates over fuel. The "energy independence" nonsense. It seems that all of this is designed to maintain not just single occupant automobile travel, but big car single occupant travel. Hybrid cars. Now some want "plug-in" electric. I'm guessing they don't want all the power plants (coal and nuclear) that would be needed to power them. Fuel cell cars. Yeah, forgetting the technological aspects of that, let's look at the trillions that would be needed to create a distribution and marketing network. Ethanol... What we need to understand is that automobiles are a part of the transportation network. Focus on the network. And, provide choices within modes of transportation. Buses would be an easy quick fix, as would car pooling. Take away free parking for single travelers.

On the housing front - something must be done on home sizes. Taking away the mortgage interest deduction is a start. Zoning is also something that needs to be addressed.

I swear, if my co-workers who drive a large SUV, commute from 30plus miles away, and have a 4 bedroom house for a family of four, keep complaining about fuel...

Lifestyle is not in the federal governments interest. Quality of life is. They are not the same.

Steven Pearlstein: You are right that many people have built a lifestyle on cheap gasoline and now that is threatened. You seem to be thinking of them as bad people. I tend to think of them who responded rationally to market signals that have now changed on them rather abruptly. You want to punish them. I think we should have changed those market signals more slowly, to give them time to adjust and to avoid transferring massive amounts of wealth from them to oil producers who are simply receiving a windfall.

Notice, by the way, that I never used the word independence. Like you, I think that's a lot of bull.

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Salt Lake City, Utah: Steve,

In your column today you mention the Enron loophole concerning derivatives. Would you please explain what the Enron loophole is, who wrote it, who sponsored it (where are they now?) and what effects it has had on the markets and the economy since it became law?

Thanks, and keep up the excellent work!

DB

Steven Pearlstein: Well, the Enron loophole was pushed through by Sen. Phil Gramm, then chairman of the Senate Banking Committee. It allows for unregulated trading of commodity derivative contracts and instruments, presumably to allow development of electronic exchanges like Enron was starting up. Mr. Gramm is now a top economic adviser to John McCain and, last I checked, a top executive at UBS, the Swiss-based financial giant which got badly burned by its investment in U.S. subprime mortgages.

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Arlington, Va.: So Steven, your brilliant plan to treat 'the Arabs' as political and economic pariahs - how does that work?

If OPEC laughs and instead of being sympathetic-sounding while they don't raise production and prices continue to rise, they just become more surly - what do you do then? I'll tell you what you will do, you genuflect and pay whatever they ask to have that oil. Right? What else can you do? Invade?

Face it, you are an addict and you are irrational about it (as all addicts are). You probably hate me, but if you can manage to beat this problem (and admitting the problem is the first step), you may come to realize that only a true friend would try and get you to face your addiction and overcome it.

Steven Pearlstein: I suspect if we were addicted to solar energy, you wouldn't be so judgmental.

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Anonymous: Since you say there is a speculative bubble, isn't it true that prices charged by retailers are way above current costs for gasoline?

Steven Pearlstein: Retailers are not the big beneficiaries of higher prices in the oil and gasoline market.

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Washington, D.C.: What do you see as the source to the speculation of the oil market? How do you view geopolitical events and the weak dollar impacting the oil market in the future?

Steven Pearlstein: The source is all those pension funds and college endowments that have decided they need to put some fixed percentage of their assets in alternative investments, including commodities. Plus hedge funds. Plus all those investors who are looking for the hot new area now that financials and mortgages have gone caput.

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Alexandria, Va.: Watching ABC/CBS... one of the news programs last night and there was a segment that I couldn't hear too much of because I was in the kitchen, but I definitely caught speculation that suggest oil could reach $150 by year's end and $200 by this time next year. Do you know what this may have been based on- and is that a true possibility? I would think that if we reached $150, you would see massive changes in this country that would cause producers to do what they could to reduce the price to maintain sales levels.

Steven Pearlstein: This line is now being pushed by Goldman Sachs, which is peddling some of the biggest and most successful commodity funds and indexes. So they may be "talking their book," as they say on Wall Street. If it gets that high, it will be largely on the basis of speculation, not fundamentals. The fundamentals don't change that much in such a short period, sorry.

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Clifton, Va.: First, windfall profits tax has never worked and will not work now

Second, this is not Western Europe we drive longer distances. Drive out Lexington, Ky sometime or through TX or MT.

Third, some folks need their pick up trucks and large SUVs for their jobs, the farm or their hobbies. Diesel hybrids have the potential to deliver a BMW X5 that gets 36mpg by 2010 and Chevy Suburban that gets 30mpg by 2012.

Fourth, buying a car is an emotional decision and often times not rational. Not everyone wants a 50mpg+ subcompact or can use one

Fifth, gas costs more in Europe because of the high taxes. It will never pass here sorry.

Sixth, conserving oil is stupid and just delays the inevitable.

Seventh, greens is U.S. face some of the blame. Nuclear power is safe, efficient and green. Well except for the rare times when the green is a green glow.

Steven Pearlstein: Lots to think about there.

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Odenton, Md.: Steve-

I read your columns and discussions to try and hold intelligent conversation with my husband who majored in economics. I was talking to him about something you posted in the last discussion and he said it was wrong. Can you possibly explain it more?

Here is the quote:

"I'll repeat here what I've said many times before: If you are angry about rising energy prices, then raise the federal tax on energy. It won't significantly raise the price of energy. What it will do is reduce the profits of the oil companies and put downward pressure on the price of crude. I know it is counterintuitive, but its right there in the economics textbooks."

He said something about its not true because of the inelastic demand on oil.

Steven Pearlstein: Well, he's right, that the incidence of the tax -- who really pays it -- depends on the elasticity of supply and demand, and over what period of time. Its complicated. But the reason that a summer holiday on the gas tax won't do consumers much good is that, over the peak summer season, there is no elasticity of supply and weak elasticity of demand. And in that instance, the "clearing price" -- the price at which supply and demand come into balance-- will be the same with or without the tax. So if you remove a tax, the price will simply rise back to where it was, meaning the "benefit" of having no tax will be passed back to producers.

Hope that helps. If not, consider a new husband.

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McLean, Va.: The environmental argument is always that gas is cheap here compared to other countries. But I've always viewed that as a small part of a larger policy choice. We chose to implement a huge interstate system, without a whole lot of investment in intercity rail. To some extent, it seems like cheaper gas should have been part of that choice. In Europe, you have to pay a lot more to fill up the car -- but you have a wider array of choices in how you travel.

Granted, we can re-think our decision. But my point is that it's not as simple as a pure x to y comparison.

Steven Pearlstein: Fair point.

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Philadelphia, Pa.: Quick fact check, from a family-owned independent dealer: surging gas prices actually jeopardize the viability of many of these dealers. They need to make (for them) massive deposits, money they may not have, on future sales. If they're with a name brand oil company, they face intensified pressure from the generics on the price front, forcing them to squeeze profit margins further. Moreover, they're the first line of consumer grouchiness. I don't think you'll find too many independent dealers who like rising prices.

Steven Pearlstein: I agree that when prices rise fast, it causes cause flow problems because the dealers have to pay for gasoline in advance. That said, margins tend to be set in terms of percentages, not just cents per gallon, and if that is true, than higher prices probably deliver slightly higher margins for dealers.

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San Francisco: Good morning,

If you believe we are currently seeing a "commodity bubble", then aren't market speculators (such as hedge funds) the primary force behind record oil prices, as opposed to traditional economic factors, such as growing demand from India and China, and concerns about inventories? If that's the case, aren't there market forces at work here that we can't really see, and thus don't fully understand? It seems that boycotting the pump for a week won't help, except saving a week's worth of gas.

Steven Pearlstein: We need to get speculators to think twice about their assumption that the price of oil can only go up. It gets to be self-fulfilling.

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Steven Pearlstein: That's all the time we have today folks. Hope to "see" you next week.

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