Oil Prices Are Dropping Thanks To President Obama

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Last updated on July 1st, 2012 at 10:06 am

We all heard the Republicans religiously chanting that the rise is oil and gas prices was due to not drilling. Unfortunately, that is far from the truth. In fact to the dismay of many environmentalists, he is drilling for oil, even in the Arctic!

Since April oil prices are down 21% and according to Forbes, it mostly, if not all has to do with President Obama.

The Forbes article states,

President Obama’s $52 million plan to increase the margin requirements and otherwise tighten the screws on oil speculators — who borrow huge sums to bet on the direction of oil without taking delivery — would cut oil prices by 10%. He’s beaten that prediction and the lowered price of gasoline has added $78.4 billion to its consumers’ spending power.

In case you never heard about it, in April the Obama administration asked Congress to spend $52 million to regulate this speculation. According to the Washington Post, this included the following steps:

Increase by a factor of six Commodity Futures Trading Commission (CFTC) surveillance and enforcement staff “to better deter oil market manipulation,”

Boost 10-fold to $10 million the civil and criminal penalties against “firms that engage in market manipulation,”

Give the CFTC authority to increase the trader margins — the amount of their own capital that traders must set aside for each bet. The administration officials said such authority “could help limit disruptions in energy markets,” according to the Post.

So how does all of that affect the price of oil?

Well, increasing the margins, makes speculating on commodities less attractive and the speculators place their bets somewhere else.

Historically, when margins are raised, oil prices fall. This is exactly what happened in February of 2011. Oil prices dropped 10% in a few months. A year later these margins were lowered, and oil prices spiked back up to 109 dollars a barrel.

So in April and May, what happened? The Obama Administration and the CFTC implemented their $52 million dollar plan to regulate the oil speculators. Now oil dropped from $106 dollars a barrel in April to $84 dollars a barrel by mid-June.

Amazingly, what worked in 2011 worked again in 2012.

Of course there are other factors in play, which is why the drop was more than the original prediction of 10%. The strengthening dollar against the Euro, the slowdown in demand and the worries over in Europe definitely play a role. But the combined effort has made filling up a little bit less costly, and that has to do with the Obama Administration.