Oil speculators have U.S. consumers over a barrel
Are speculators really driving oil prices?
The truth is no one knows because their practices are hidden. That needs to be fixed. But the true cause of the price spike is much more obvious, much harder to address, and much less useful for political pandering.
Focus on their role distracts from tough decisions on dependency.
Having previously placed the blame for rising energy costs on Big Oil, OPEC, greedy refiners and various other vilified price gougers and corporate misfits, Congress is now focused on a new culprit: speculators. Specifically, the hedge funds, pension funds and other large institutions that buy and sell oil futures contracts with no intention of actually taking delivery. They do so purely as an investment.
Both presidential candidates, eager to capitalize on anger over $140-a-barrel oil, want to increase the scrutiny of trading practices. That's a good idea because the speculators' world is so opaque that nobody can say with any confidence what effect speculation is having on prices. Common sense suggests understanding the problem before attacking it.
But some members of Congress, including the author of the piece below, see political gold in leaping before looking. They want to place limits on the ability of some traders to buy and sell oil.
This is just the latest effort to do anything that seems quick and easy, because creating a truly effective energy policy is so hard. To blame speculators for high oil costs is, at best, to treat symptoms rather than causes. Speculators can drive up prices only when supplies are tight to begin with. They are a kind of canary in the coal mine.
What's more, few good ways exist to limit speculation.
One distinctly bad idea under consideration is to have the Commodity Futures Trading Commission divide oil traders into "legitimate" and "non-legitimate" camps. The former, including traders buying futures for airlines and other energy-dependent industries as a hedge, would be able to buy with few restrictions. The latter, those who don't need oil but see it as good investment, would be limited in some way.
This amounts to a form of rationing, with bureaucrats ruling on who can buy what, even as speculation continues on foreign markets beyond their reach. It makes as much sense as banning people without driver's licenses from buying ExxonMobil stock.
Some ideas, such as decreasing the amount that traders can borrow, could have merit. And improving transparency makes a good deal of sense. Traders can buy and sell oil futures from each other without listing on an exchange, which makes it hard to track who is buying what.
This invites price volatility. Markets don't like uncertainty. It can also make it easier for unscrupulous traders (remember Enron?) to manipulate the market.
Requiring oil futures to be traded on regulated and transparent markets such as the New York Mercantile Exchange would be a useful move. But practically, there might be limits to what can be done. Oil is bought and sold around the world. Greater regulations here could drive trading abroad unless foreign markets impose similar rules.
Whatever role the speculators play, you can be sure of this: Neither they nor any of the usual suspects are the sole cause of today's problems, nor is there any single solution. The real culprit is surging demand both at home and abroad. Until the nation begins weaning itself from oil dependency, it will only waste time and money in an unproductive blame game.
Print | posted on Monday, June 30, 2008 1:26 PM