Oil Speculating Reform

Article of the day was found on CNN Money: "Oil Speculators on the run"

It is about time people are waking up to the fact that oil prices are not just driven by supply and demand. I have commented on this in past blogs. What we have seen in the last 18 months is way more than just an adjustment to our changing world demand for oil. I understand that OPEC and the big oil companies have a large impact on the price of oil, but that is understandable, because that is what they deal in. Having financial firms with their hands in the pot is not logical though.

So why would we allow outside entities to participate in the commodity markets in the first place? Well, initially it was to add fluidity to the markets and keep the control out of the hands of just a handful of players. Since its inception, the commodity markets have matured significantly, and no one would have every dreamed that so many outside parties would be involved. This quote from the article amazes me “"non-commercial" players -- i.e., banks, pension funds and the like -- now hold 50% of the contracts on the U.S. oil futures market. That's up from 20% in 2002.” In my opinion, the oil markets have plenty of players that are direct/indirect users of oil. We do not need Wall Street taking bull or bear positions in such an influential commodity just because their normal investments are not bringing them the returns they desire.

Will the price of oil drop if we eliminate these speculators? NO! Oil will not drop just because they are not in the markets. What will happen is we will not see the huge spikes and dips in the price. Speculators thrive on emotion, and real oil producing or consuming companies rely on facts and forecasting. Big Difference!

America has too much at stake to leave it to the hands of a bunch of speculators. Keep the commodities markets as a business tool to hedge and trade resources. It is not a “GET RICH QUICK SCHEME!”