I find the current political demagoguery that oil speculators are now the ones responsible for higher oil prices to be absolutely laughable. I am willing to believe that oil supply and demand are perfectly inelastic over very short time periods, meaning that we might expect little change in supply or demand over a couple of days or weeks after a price change, allowing for a fairly free range of speculative excesses. However, there is every evidence that oil is by no means perfectly price inelastic, and supply and consumption do change with price. Already in the past few months we have seen, for example, substantial reductions in passenger car miles in this country.
For any period of time longer than hours or days (or perhaps weeks), any cabal that is somehow manipulating oil prices well above the natural market clearing price is going to have to deal with a problem: Extra oil. Lots of it. Even if the supply side is sticky due to shortages currently in drilling equipment, demand is not. People are going to use less, and at the same time, every supplier is going to be trying to send every barrel to market as quick as they can (oil producers know that prices that rise will eventually fall again -- that is the history of oil. They are all programmed to move as much product as possible when prices are at all time highs).
A lot of dynamics, such as a short squeeze, can create a speculative bulge, but if speculators are somehow purposefully keeping oil prices high for long periods of time, they must be doing one of three things:
- Storing a lot of oil somewhere
- Creating an extensive system of production controls that keeps oil supply off the market.
- Have someone with deep pockets subsidize consumer demand for oil by selling excess oil off at below market prices.
One is just not possible, not in the quantities that would be required. Two sort of happens in a haphazard and not very consistent way with OPEC, though it is hard to convince me that futures traders in Chicago have an active partnership with large state-run oil companies. Three is actually happening, with the Chinese government continuing to sell gasoline and other petroleum products at below market prices, but there is evidence that there are limits to how much further they will take this. Again, I think this is being done for reasons other than cooperation with mercantile exchange traders in the US.
To a large extent, this theory, if it is anything more than just populist capitalism-bashing, is a result of extreme ignorance. There are an incredible number of people involved in the oil markets every day in numerous countries with numerous different incentives, such a large number that it is impossible to imagine a conspiracy. There have been a couple of cases of proven petroleum commodity price manipulation in these trading markets - most of these have involved manipulation of prices at the end of the day on certain futures expiration and/or Platt's pricing windows. The time frame for these manipulations have been on the order of 1-2 minutes.
But here is the best argument against this manipulation for higher prices, and it is amazing to me that no one ever thinks of it. Sure, there are a bunch of really savvy people in the commodity trading business who are long on oil and want the price to be higher. But for every seller, there is a buyer on the other side, someone who is at least as savvy and is desireous of lower prices. Yes, I know it is a complicated concept, but for every trader selling there is one buying. If there is an extended conspiracy to push up oil prices by speculators, do you really think the buyers are just going to sit on their hands and take it? And do you really think the exchanges are going to be happy with this behavior, threatening the integrity of their trading system (really their only asset)? Just ask the Hunt family, which attempted to corner the market and drive prices up in silver, only to have major buyers and the exchanges stop them cold, driving the Hunts in the process into bankrupcy.