Dueling Views On Oil Speculators

Todd Shriber
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The mere mention of the word speculators, particularly of the oil variety, has a tendency to conjure up plenty of unsavory images. While oil prices have been declining recently, they are still uncomfortably high, at least for the businesses that depend on oil to grease their wheels of commerce and for consumers and the ''working family,'' just to throw in some political jargon.

Of course there are two sides to every coin and while oil speculators have no shortage of detractors, there are some supporters, indirect as they may be. Headlines on the subject were somewhat plentiful today, so now is as good of a time as any to talk about the impact oil speculators have on prices while looking at the issue from both sides.

In one corner, we have the International Energy Agency, which said today that speculative oil trading has leveled off over the past several years, making it difficult to point the finger at speculators for high prices. IEA may be correct. It may not be. The fact is that the Federal Trade Commission sent a letter to a Washington senator Monday announcing it had launched an investigation to determine whether oil producers, refiners or traders were engaging in anti-competitive behavior or providing false information to federal agencies about the wholesale price of oil, MarketWatch reported.

Add to that, earlier this year, the Justice Department and several other federal agencies announced they would examine illegal activity in the oil and gas markets.

On the other side, some pundits maintain that it is in fact market manipulation that has led to higher oil prices. I will admit that the Huffington Post is not my first source for news on financial markets, but the author of a post published there today makes an excellent point: Even Goldman Sachs says that LEGAL speculation may be adding 65 cents to 70 cents per gallon of gas. If that is true, filling up a 20-gallon tank once week for 52 weeks ends up costing consumers an extra $728 per year.

Who would not want an extra $728 a year to invest in the stock market or spend on a vacation or fancy TVs? Remember that, as Huffington Post notes, even Exxon Mobil (XOM) CEO Rex Tillerson said recently that given the supply/demand environment, oil should be trading for closer to $65 to $70 per barrel. I think comments like that from the CEO of the world's largest publicly traded oil company are worth noting, don't you?

The Dodd-Frank legislation passed as a reaction to the financial crisis was supposed to do something about limiting energy market speculation, but the Commodities Futures Trading Commission (CFTC) failed to impose those position limits in January, when it was supposed to. Another recently proposed bit of legislation seeks to force the CFCT to impose those position limits right away.

It may be some political posturing because we are getting close to another election year, but it might be worth a look, especially given the anemic pace at which this economic recovery has taken shape. Then again, with peak oil basically here, maybe it is not fair to point the finger at speculators at all.

Todd Shriber