The controversy over the influence of speculators on oil prices has been ongoing as to exactly what percentage speculation is playing in the price of oil. Many blame speculators as the drivers of energy prices based on the argument that the traditional forces of supply and demand, simply, cannot fully account for historic high oil prices.
Furthermore, the pretension consists in the fact that as speculators execute large purchases of crude oil futures contracts, it creates an additional demand for oil, driving up the price of oil to be delivered in the future – in the same manner that additional demand for the immediate delivery of a physical barrel of oil drives up the price on the spot market.
Despite these arguments, the reality is that the total amount of speculative trading is just a fraction of total contracts bought and sold by producers and refiners. Consequently, their impact could not be significant enough with world oil sales totaling more than $3.3 trillion dollars annually.
This argument seems to have found some support on Tuesday. According to IHT , a U.S. government task force, led by the Commodity Futures Trading Commission with help from six other agencies, including the Federal Reserve and the Treasury, said that if found no evidence – of speculators systematically pushing up the cost of energy.
For example, swap dealers, who privately offer investors a future return linked to commodity markets, were roughly balanced between purchases and sales of energy futures contracts. And in the first five months of 2008, more of these swap positions were selling than buying. In that same period, oil prices rose 28 percent.
The task force, while fully acknowledging the fact that the energy futures markets in recent years, had attracted many investors by high returns, added, that its research ” did not not support the hypothesis that the activity of these groups is driving prices higher.”
The report’s key finding was that speculative investors more often changed their positions after prices had moved, not before, suggesting that these traders “are responding to new information — just as one would expect in an efficiently operating market” the report said.
I believe, it is critical for U.S. policy makers, analysts and regulators, to understand the true reasons behind skyrocketing energy prices. Price increases are due to supply and demand imbalances, not speculation. New economic policies must be developed in order to encourage investments in new energy sources and conservation of existing supplies. Denial is not an option anymore.