Not so long ago, in a saner economic world, the price of oil (and by extension, gasoline) had at least a modicum of connection to the fundamental laws of supply and demand. If the sheiks in Saudi Arabia turned off the taps, which they did on occasion in the 70s and 80s, supply went down and the price went up. Conversely, when the price went up, demand went down, supplies increased, and the price went back down.

In the past couple of weeks, the price of gasoline has increased dramatically after a short drop. What’s spurring the price rise? The same thing that triggered the global economic collapse in 2008: greed and trading speculation in the price of oil.

You thought Depression 2.0 was a result of bad mortgages? In my opinion, you would be at least partially mistaken. I wrote about my own theory last year (here and here) when the price of oil ran up to $147 per barrel:

[In early June, 2008] Standard and Poors downgraded Morgan Stanley’s rating because of their exposure in mortgage backed securities. From a market manipulation standpoint, could Morgan Stanley have issued their “prediction” in order to drive up the value of their holdings in the petroleum commodity market, as a way to offset the downgrade due to their exposure in mortgage backed securities? Hmm? Since Morgan Stanley is one of the biggest players in the commodities market, it’s a question worth exploring …

What we’re seeing in late 2009 is almost an exact replay of 2008, only the players are a bit different. The dollar is in the tank, along with the rest of the economy. We’re not being told how truly bad things are (although many of us are feeling the pain, and inherently know how bad things are). The credit markets are still basically shut down to the average consumer, and the mortgage/home foreclosure crisis is far, far from over. There are not a lot of safe havens for investment money right now. So which direction does the money flow? Toward a necessary, fungible commodity that every government, business, and individual around the world needs: oil.

Industry analyst Stephen Schork laid it out simply in this excellent report broadcast by Philadelphia’s 6ABC. When asked why the price of gasoline was rising so dramatically, Schork said simply, “because of the speculator”:

… the same speculators that drove the world economy into Depression 2.0 during the waning days of the Bush administration. Now, nine months into a new administration, the traders are still being allowed to manipulate the market outside the parameters of supply and demand. As Schork puts it, oil is no longer traded as a fungible commodity, but as a “dollar hedge; an investment vehicle,” like a precious metal such as gold.

The problem with Schork’s analogy is that oil isn’t like a precious metal. It’s more like toilet paper — a consumeable, rather than a hard commodity. Petroleum is a necessary, consumeable component of our lives that fuels global economies. We can’t get by without it. Oil gets consumed, and when it’s used, it’s gone, unlike a precious metal that will essentially be around forever once extracted from the ground. Because of this difference, the buying and selling rules for oil need to be tightly controlled and largely immune from overt market maniuplation. But the big investment houses keep manipulating the price again and again, with no blowback from government regulators or consumers. And this time, it almost appears as if the speculators are playing the Wall Street Casino with house money — taxpayer funded, TARP bailout money.

Think about it. The few remaining large investment houses are manipulating the oil market, raking in huge bonuses for doing so and screwing you again — with your own damn money!

On many levels, volatility in the oil markets has become a true national security issue for the United States and the world. It’s way past time time for a global war on market driven economic terror, because right now, the economic terrorists in our own midst are winning. They even go so far as to boldly admit that they’re using offshore markets (such as the Dubai Mercantile Exchange) to trade up oil prices, because there are nominal trading limits by NYMEX rules, ostensibly governed in the United States by the Commodity Futures Trading Commission.

So, what can the average person do to express their concerns and outrage over the overt manipulation of oil prices? Taking that one step further, what can the U.S. government and regulators do to reign in the continuing market manipulation? Apparently, absolutely nothing, other than to decrease demand for the product to a point where the market for the product is unsustainable. But even that isn’t working as it should. Example: Sunoco’s huge Eagle Point refinery in New Jersey is closing because there’s so much gas on the market, and Sunoco can’t make a buck from refining oil at the plant right now.

Again, it’s a national security issue, but it’s not being treated as such by either the Obama administration or congress. And it needs to be, right now, before things get even further out of hand (if it’s not too late already).