By KEVIN G. HALL
WASHINGTON -- Oil and gasoline prices are rising fast as Memorial Day weekend approaches, but not because supplies are tight or demand is high.
U.S. crude oil inventories are at their highest levels in almost two decades, and demand has fallen to a 10-year low, but crude oil prices have climbed more than 70 percent since mid-January to a six-month high of $62.04 on Wednesday.
Meanwhile, although refiners are operating at less than 85 percent of capacity, leaving them plenty of room to churn out more gasoline if demand rises during the summer driving season, the price of gasoline at the pump has climbed 28 cents a gallon from a month earlier to $2.33.
This time, Wall Street speculators - some of them recipients of billions of dollars in taxpayers' bailout money - may be to blame.
Big Wall Street banks such as Goldman Sachs & Co., Morgan Stanley and others are able to sidestep the regulations that limit investments in commodities such as oil, and they're investing on behalf of pension funds, endowments, hedge funds and other big institutional investors, in part as a hedge against rising inflation.
These investors now far outnumber big fuel consumers such as airlines and trucking companies, which try to protect themselves against price swings, and they're betting that the economy eventually will rebound, that the Obama administration's spending policies and Federal Reserve actions will trigger inflation - or both - and that oil prices will rise.
"They're buying because they think it will diversify their portfolio, and they think it will diversify their portfolio against inflation, and maybe they think the economy will turn around," said Michael Masters, a hedge-fund manager who testified before Congress last year about the consequences of what are called exchange-traded funds.
Oil contracts are traded mostly in U.S. dollars, and inflation would erode the value of oil earnings, stocks or any other asset denominated in U.S. currency. Many investors are pouring money into oil futures - contracts for future deliveries of oil at specified prices - in the belief that oil prices will rise as inflation erodes the dollar's value.
This turns oil futures contracts into a way for investors to hedge against inflation at the expense of American consumers, who have to pay more to fill their gas tanks as oil and gasoline prices rise.