I think it is good to carefully monitor speculation, but we need to be careful what we wish for. The "cure" proposed by a bunch of politically motivated Congressional hacks can do far more harm than good. Here is a sampling of what the experts are saying today:
"Every dogma has its day, and so it is with the posturing that blames the run-up in oil prices on "speculators." The new political consensus is that further "common-sense regulation" of the energy futures market is necessary. Let's grant that the sentiment is common, but the sense β like the evidence β is nonexistent.
On Sunday, Barack Obama rolled out a proposal that will supposedly thwart market manipulation by "a few energy lobbyists and speculators." John McCain chimed in that Mr. Obama was merely following his lead; last week, the Republican denounced "some people on Wall Street" for "gaming the system." If there's a Congressman who isn't calling for his own crackdown, he's gone into witness protection. And sure enough, even this week's impromptu oil summit in Jeddah blamed "speculators" for high prices.
The futures market may be a convenient scapegoat, but it's simply a price discovery mechanism. Major energy consumers β refiners, airlines β buy and sell these contracts to lock in goods at a future price, as a hedge against volatility. Essentially, they're guesses about coming oil supply and demand, as well as the rate of inflation. The political theory is that such futures trading is creating a bubble in the spot market (i.e., oil purchased for immediate delivery) beyond oil fundamentals. Thus, $4 gas.
But there's no inherent reason to "bet" that commodities will go up rather than down. Bet wrong β place all your chips on red, say β and you lose. If a company purchases the future right to buy oil at $140 a barrel and it instead sells for $130, the option is worthless. Besides, somebody has to take the other side of any futures contract: Some are trying to predict where the price will go in the future, while the other side is attempting to sell its future price risk. But no one knows how things will end up..."
Political Speculators - WSJ.com
"But the CFTC sought to counter that presentation. In a separate note, the commission said the 70% share includes both long positions, or bets on a price gain, and short positions, or bets on a fall, held by swap dealers and speculators. Swap dealers as a whole have a close to neutral position in the crude-oil markets, the CFTC said, meaning they are almost equally long and short in the marketplace.
The CFTC has traditionally said that speculators only represent around 30% of the market, but after lawmakers asked the agency to reclassify swaps dealers as speculators, and not commercial hedgers such as airlines, the ratio dramatically flips.
Acting CFTC Chairman Walter Lukken said a large portion of those swaps deals would be for commercial businesses looking to hedge fuel costs. "Morgan Stanley manages all of United Airlines' risk," Mr. Lukken told reporters on the sidelines of the subcommittee hearing. The acting chairman said that the CFTC's old data showed that speculation wasn't pushing prices up, "But I think what would be admitted is that our data could be improved."
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"Lawmakers eager to curb speculation in oil markets got support Monday from witnesses who told a House subcommittee that oil prices could fall sharply if Congress put strict limits on trading in energy futures by investment banks, pension funds and other financial investors.
But officials of the Commodity Futures Trading Commission disputed the findings of a Congressional study that concluded 70% of trading in certain key oil futures contracts is now speculative. And leaders of the world's two leading oil exchanges, the New York Mercantile Exchange and the ICE Futures Europe, based in New York and London, respectively, ..."
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