Why Speculators Are Good for the Oil Market

The last thing the energy market needs right now is a curb on speculators.

What's the next step -- limits on how many futures contracts you can buy?

Let's hope not, because the cure could be worse than the disease.

In the latest Congressional game of "pin the blame," that seems to be exactly the direction politicians want to go.

Earlier this week, Sen. Jeff Bingaman (D., N.M.) published an open letter to the Commodity Futures Trading Commission expressing concern that high energy prices might be caused by speculators.

That came on the back of testimony last week given to the Senate Committee on Homeland Security and Government Affairs by Michael Masters of Masters Capital Management, who said such speculative interests were to blame. It also comes in concert with widespread calls for curbs on speculators.

"The emotional side of this is that oil prices have gone up and politicians are looking to blame someone other than themselves," says Adam Sieminiski, chief energy economist at Deutsche Bank in Washington, D.C. "Right now, it's speculators who are taking the brunt of the popular anger for high oil prices."

In the first place, it's not clear that commodity speculators have anything to do with the problem at all.

And guess who says that: the government's own organization charged with overseeing the smooth and efficient operations of futures markets - the CFTC.

"To date, CFTC staff economic analysis indicates that broad-based manipulative forces are not driving the recent higher futures prices in commodities across-the-board," states its written testimony to the Senate Committee on Homeland Security published last week.