“Banning oil speculators from commodities exchanges could drive down the price of oil by 40 percent and gasoline down by $1 a gallon, says Joseph P. Kennedy II, a former U.S. representative from Massachusetts and founder of Citizens Energy Corporation.
Today, speculators, who buy and sell oil futures without ever taking physical delivery of the product, dominate the market in pursuit of financial gain, Kennedy writes in a New York Times OpEd.
Supporters of allowing speculators buy and sell oil futures say they keep the market liquid and dilute risk.
Maybe it’s gone too far, Kennedy says.
“It’s one thing to have a trading system in which oil industry players place strategic bets on where prices will be months into the future; it’s another thing to have a system in which hedge funds and bankers pump billions of purely speculative dollars into commodity exchanges, chasing a limited number of barrels and driving up the price,” Kennedy contends.
Consumers are more sensitive to swings in oil futures unlike other commodities that naturally compete with substitutes.
“There is a fundamental difference between oil futures and, say, orange juice futures. If orange juice gets too pricey (perhaps because of a speculative bubble), we can easily switch to apple juice. The same does not hold with oil,” Kennedy writes.
“Higher oil prices act like a choke-chain on the economy, dragging down profits for ordinary businesses and depressing investment.”
Senator Bill Nelson, a Florida Democrat, has called for Commodity Futures Trading Commission chief Gary Gensler’s ouster if he doesn’t apply regulations limiting speculation in commodities markets.
“Middlemen are bidding up the price of oil and flipping futures contracts for a quick profit, much like speculators who bought and resold condominiums during the real estate bubble,” Nelson writes in a letter to President Barack Obama, according to Reuters.
“Mr. President, if CFTC Chairman Gary Gensler doesn’t act soon to implement rules that will cut down on speculation in the oil futures markets, then you should consider not reappointing him.”