Should Oil Speculators Be Banned?

A hot topic recently has been the vilification of ‘speculators’ in the marketplace. Undereducated politicians are motivated to change the rules and do something about big price movements from the past. The oil spike in 2008 is being used incorrectly as an example of trader’s abuse of power for financial gain.

The same ‘evil’ forces also drove crude to $33 a barrel earlier this year, but for some unclear moral reason, it is good to push prices lower? This same logic doesn’t apply to stocks because when financial stocks were seen as overvalued, selling restrictions were put in place to prevent downward pressure. We all know that only made the problem worse and delayed the inevitable, dragging out the outcome longer.

The futures markets need more (not less) speculators to ensure smooth price movement for all participants large and small. These markets exist for hedgers to lock in costs and run a more efficient business. Using futures to fix volatile commodity cost inputs can go far to ensure corporate profit and price stability for end consumers. Without the combined strength of speculators, who will take the other side of the massive Southwest Airlines fuel hedge?

Oil is the hot-button issue, but people fail to focus on the core issue. OPEC is a cartel. The organization is designed to manipulate the markets and prices for maximum profit. Some in government are attempting to control the tail of this lion, not the man-eating king of the jungle.

The Daily Reckoning