Curb oil speculation? Why that's folly
Yes, oil companies also faulted speculators for high prices last year, but who can blame them for wanting out of the political firing line? Oil company traders knew full well that the commodity funds that buy and sell futures contracts are not equipped to take or make delivery of oil. Oil refiners understood that speculators must sell their futures contracts before they expire. That's why the near-future price of oil -- the price of oil for September delivery, say -- cannot get too far away from the realities of supply and demand in the physical market. No oil company trader worth his salt is going to pay an above-market price to a commodities fund manager who is under time pressure to sell.
His conclusion
My response: Be careful what you wish for. If you tell investors that they have to take delivery in order to invest in oil, that's exactly what they will do. They will store oil in every onshore oil tank or offshore supertanker they can get their hands on, thereby siphoning off oil that would otherwise be available to consumers. It will be a replay of the late 1970s, when the Hunt Brothers took delivery of 10% of the world's silver supply, causing silver prices to quadruple.
Don't believe me? Consider what happened in January, when the price of oil futures four months out was $15 a barrel higher than the spot price, which incentivized oil companies and investment banks to store oil like crazy.
So if Congress and President Obama really want to enact regulation that encourages hoarding, I say go right ahead. It will prove my point -- albeit at the expense of 300 million American consumers.
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