Why are oil prices going through the roof?

As she watched the numbers flick upward while filling her car at a gas station in Providence, R.I., the other day, a woman turned to another customer with a grimace and said, “I told my kids we’re just not going anywhere. We’re going to be staying home.”

Similar conversations are heard across the U.S. as Americans worry about how to cope with soaring gas prices. In Rhode Island and much of the rest of the country gasoline is now nearly $4 a gallon, or more, jumping 13 cents in the last week.

A number of critics charge that Wall Street speculators and oil companies are key culprits in the price surge, and are calling for government intervention.

At a May 21 Senate Judiciary Committee hearing titled “Exploring the Skyrocketing Price of Oil,” oil company executives asserted that the price spikes had nothing to do with their practices, mammoth profits or luxurious compensation. Some claimed they did not even know how much they were being paid — a point that infuriated some senators.

“Consumers are angry — and they have every right to be — and the American economy is buckling under the weight of gas prices,” said Sen. Herb Kohl (D-Wis.), as quoted in The Hill. “And while consumers and businesses suffer from these price increases, the oil industry seems only to get richer and richer.”

Alabama Republican Sen. Jeff Sessions, running for re-election this fall, chimed in that oil companies “don’t exist to produce the lowest possible price of fuel for our constituents. They exist to maximize their profits for their shareholders.”

The oil executives, and many on Wall St., argue that the oil price spike is out of their hands, caused solely by the anonymous world market — increased demand and tight supply. They say the answer is, leave them and their profits alone, and open up more federal land for drilling.

But earlier in the month, Tyson Slocum, director of Public Citizen’s Energy Program, told a House subcommittee that uncompetitive practices by oil companies and manipulation of the market by financial speculators are two big culprits behind soaring gas prices.

The five largest oil companies in the U.S. — Exxon Mobil, ChevronTexaco, ConocoPhillips, BP and Shell — have raked in $586 billion in profits since 2001, Slocum said in May 6 testimony. During that time, gasoline prices have risen 160 percent and diesel has gone up more than 210 percent.

At least 70 cents of the price you pay for a gallon of a gasoline is attributable to pure speculation, unrelated to supply and demand, he said.

Supply and demand are a factor in oil prices, Slocum told the World in a phone interview. “Oil is a finite resource, and the world is using a lot. It’s getting tougher and tougher to find productive oil fields.” However, “there’s clearly a disconnect” between those factors and the spiking prices, he said. “Speculators have gone wild.” With no regulation, “they’re free to do whatever they want.”

His point was confirmed by prominent Wall St. oil analyst Fadel Gheit in a Wall Street Journal interview in February. Gheit, a managing director at Oppenheimer & Co., told the Journal that more than half the price of crude oil can be attributed to financial speculators. World oil supply and demand, he said, has not fluctuated enough to explain recent sharp oil price spikes.

Gheit said oil companies can profitably replenish their supplies at $15-$20 per barrel. With the selling price of crude oil historically three times the extraction price, that would put crude oil prices at $45-$60 a barrel, he said. “So anything over $45 a barrel is all fat.”

Crude oil prices have jumped more than 40 percent since December and now hover around $130 a barrel.

The speculation that Gheit and others are talking about involves “hedge” funds, big banks and other big financial players who buy oil contracts at the current price, paying only a small percentage and borrowing the rest, betting that prices will rise and they will make big profits. The surge in such speculative deals has become self-fulfilling, driving prices up, experts say.

Last December, Gheit testified before a Senate committee hearing on the role of speculation in oil’s price surge. He argued that speculation accounted for much of the price increase in the last year, called for stricter regulation, and said serial violators should face jail time.

“Unless and until regulators step in and stop this toga party, this will dwarf the subprime debacle,” Gheit told the Journal.

A Senate investigation found that Goldman Sachs and another leading investment firm, Morgan Stanley, each earned about $1.5 billion from energy trading in 2005, Public Citizen notes.

The federal Commodity Futures Trading Commission, apparently feeling the public anger, announced last week it is investigating possible price manipulation in U.S. oil markets.

Other factors cited as contributing to rising oil prices include the declining value of the dollar, which makes oil more expensive in dollars compared to other world currencies, and supply disruptions, in particular the Iraq war. Public Citizen and others also charge that oil companies are deliberately restricting supply by limiting refinery capacity.

Carl Wood, director of regulatory affairs for the Utility Workers Union and a former California public utilities commissioner, took issue with environmental advocates who say rising oil prices are a good thing since they will curb use of oil and promote alternatives. This ignores the impact on workers like Woods’ union members. “We don’t want unnecessary use of fossil fuels, but we don’t want profiteering either,” he said.

The question is, who is making the decisions about what’s important to society, and how it’s going to be paid for, Wood said. “As a society, our challenge is, how do you democratize the decision-making process within a profit-making economy? We have to both protect the economic interests of workers and their environment.” This is where regulation is so crucial, he said. “Regulation is a key exercise in democracy. That’s why the Republicans hate it so much.”

This will be “a key challenge” for all future administrations, and especially urgent for the next president and Congress because “this administration has been so reckless and destructive,” Wood said.

In his congressional testimony Slocum called on Congress to repeal all existing oil company tax breaks, including the roughly $9 billion a year in subsidies to oil companies, and implement a windfall profits tax, which would finance clean energy, energy efficiency and mass transit. He also called for a federal crackdown on anti-competitive practices by oil companies and investment firms, and re-regulation of energy trading exchanges.

Slocum urges public support for HR 5351, the Renewable Energy and Energy Conservation Tax Act, which would repeal roughly $18 billion in tax credits for oil and gas companies while extending tax credits for renewable energy and energy conservation programs. It was passed by the House in February, 236-182, with virtually all Democrats voting yes and virtually all Republicans voting no. Bush said he would veto it, and it is now bottled up in the Senate.