CNN Reports Oil and Gas Price Fears, Ignores Market Dynamics
There are many reasons Americans might feel less-than-optimistic about getting any relief from energy prices, especially when most news reports focus only on pessimism.
In three separate segments on the three-hour-long March 20 ‚ÄúAmerican Morning,‚ÄĚ CNN senior business correspondent Ali Velshi reported the results of a CNN/Opinion Research poll. According to the results, Americans believe gas prices will exceed $4 a gallon this year.
‚Äú[S]o, now we asked for a little premonitions,‚ÄĚ Velshi said. ‚ÄúWhat do we think is going to happen to the price of gasoline? How likely is it gasoline will cost more than $4 a gallon this year? Again, we are at $3.27 a gallon, but some states ‚Äď because that‚Äôs the national average ‚Äď some states are already above $4. Seventy-two percent, once again saying highly likely that it will reach $4 a gallon. Twenty percent saying somewhat likely. Eight percent saying not likely ‚Äď which would seem unusual except that we are actually seeing a drop in the price of a barrel of oil.‚ÄĚ
‚ÄúRight now, we‚Äôre seeing gas prices go up, but we‚Äôve had some predictions they‚Äôll be between $3.50 and $3.75 by the time we get to Labor Day,‚ÄĚ Velshi said. ‚ÄúSo for those of you - eight percent ‚Äď that are hopeful, I hope you‚Äôre right.‚ÄĚ
Although ‚ÄúAmerican Morning‚ÄĚ had the consumer sentiment angle covered extensively and even reported the price of oil had retreated, the news show failed to report why oil prices have fallen ‚Äď coming off a high of $110 a barrel on March 17 to hover around $100 a barrel on March 20. The circumstances surrounding this fall could have put even more downward pressure on gas and oil prices.
After recent Federal Reserve activity in the wake of the Bear Stearns collapse, currency traders have regained confidence in the U.S. dollar, demonstrated since March 17 in the currency markets. As the value of the dollar has increased, the price of oil has decreased significantly, since the price of oil is based on the dollar. This has caused a viral effect on the price of oil as commodity traders sell off their oil holdings.
‚ÄúI think right now everybody‚Äôs running for the exits, quite frankly,‚ÄĚ Mike Theesfeld, a floor trader for HPR Commodities, said on CNBC‚Äôs March 20 ‚ÄúSquawk Box.‚ÄĚ ‚ÄúWe know there‚Äôs a lot of speculative interest in crude oil and we know a lot of it was based on the weakness of the dollar. And the Fed‚Äôs recent move kind of indicated to us they‚Äôre not going to go with this kind of ‚Äėweak dollar policy.‚Äô‚ÄĚ
According to Theesfeld, the more proactive the Fed becomes in propping up the dollar, the more oil prices will decline.
‚ÄúPerhaps they‚Äôre trying to find some support for the dollar and I think as soon as the longs realized that was the case, and they realized this dollar/crude trade was not going to be efficient anymore, at least in the short-term, they started running for the exits and now it‚Äôs just kind of building upon itself as people exit the trade,‚ÄĚ Theesfeld said.
Theesfeld also indicated that as oil prices have spiked over the past couple months, gasoline prices haven‚Äôt followed as strongly. He said consumer behavior has prevented gasoline prices from rising at the same rate as oil, but as oil declines, he expects gas prices to remain steady.
John Hofmeister, president and CEO of Shell U.S., said the price of crude oil was very inflated and he blamed it squarely on speculators.
‚ÄúI think, the crude price ‚Äď I was surprised it ever hit $100,‚ÄĚ Hofmeister said on the March 20 ‚ÄúSquawk Box.‚ÄĚ ‚ÄúThere‚Äôs always, in any commodity, there‚Äôs always a little bit of speculation. But, if you look at the crude coming out of the ground, there‚Äôs no real basis for having $100 crude.‚ÄĚ