Editorials

Curb oil speculators' undue influence on market

If you like mystery stories, consider this one: Why are gasoline prices rising when demand isn't?

Who broke the most basic rule of economics to take money out of the pockets of millions?

The Commodity Futures Trading Commission has been sleuthing that one for some time and has come up with an answer. The CFTC believes that speculators who trade in oil futures with no intention of ever using the oil contribute to the high prices we're paying at the pump. Michael Greenberger, a law professor who led the CFTC's trading division in the 1990s is willing to go even further and say speculators are manipulating prices to make money, lots of money. That's the upshot of a story by McClatchy Newspaper reporters Kevin Hall and Robert Rankin.

It's easy to glaze over when terms like commodities and futures and speculation crop up in a story with a boatload of statistics thrown in but here's the circumstantial evidence in a nutshell:

■ In the U.S. we've been using less oil for the past two or three years. Energy consumption declines during economic downturns as factories slow or stop production, and drivers are pinching miles to save pennies.

■ U.S. oil production is growing and refineries are running below capacity, so the rise in prices cannot be attributed to scarce supplies.

■ About 70 percent of the contracts for future oil production are bought by investors (also read speculators) who have no plans to use the oil.

What this boils down to is that, even though there may be plenty of oil to go around, a small group of interests controls a significant majority of future oil production and so can squeeze the rest of us for higher prices.

Just think of what it would be like if a handful of investors bought up 70 percent of the tickets for University of Kentucky men's basketball games in advance of the season but had no intentions of ever attending a game themselves. Do you think they could make some money?

The problem here isn't that there are futures markets or even that there are speculators. Both are necessary and useful even if it is sometimes hard to understand their workings. Things are out of whack because the speculators have control of too much of the market and that allows them too much influence over prices.

This is why 17 U.S. senators, Greenberger and others want the CTFC, which regulates trading in commodities like oil, to limit the amount speculators can buy. According to the McClatchy report, oil companies aren't too thrilled with this view of things. Also, it seems likely that the interests making money on futures — huge firms like Goldman Sachs and J.P. Morgan Chase — will fight changing the rules.

Oil is a finite resource, and the developing world's powerful thirst for it will push up demand. So, don't get up hopes that controlling speculation will bring back the days of cheap gasoline.

But if the government would rein in speculation, we could at least know that when we buy gas at the pump no one will be breaking the laws of economics to take money out of our wallets.

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