http://www.bloomberg.com/…

Speculators became the largest players in oil futures markets, nearly doubling their share in the past eight years as prices rose to records, in a “radical shift” for the market, according to a congressional committee.

In January 2000, speculators controlled 37 percent of contracts to buy West Texas Intermediate crude oil on the New York Mercantile Exchange, with the rest held by physical hedgers, including refiners and airlines that need to hedge against delivered fuel costs.

By this April, speculators controlled 71 percent of the contracts, according to data provided to the House Energy and Commerce Committee by the Commodity Futures Trading Commission.

“Energy speculation has become a growth industry and it is time for the government to intervene,” Representative John Dingell, the committee chairman, said at a subcommittee hearing today.

Isn’t it pretty damn obvious that interference by the government is why we have this supposed problem in the first place? Inflation of the currency, non-inflation based devaluations, higher demand, regulated supply, wars with oil producing nations, the threats of war with oil producing nations, artificially low interest rates, economic bubbles bursting. These push people to buy commodities. What better a commodity to buy but one almost guaranteed to be in high demand and shrinking supply?

Crude oil prices have doubled from last year, reaching a record $139.89 a barrel in trading on the New York Mercantile Exchange June 16. Congress has held several hearings on what is driving prices up, and President George W. Bush last week called for expanded drilling to respond to record prices. Crude oil for August delivery rose $1.38, or 1 percent, to settle at $136.74 a barrel at 2:57 p.m. today on Nymex.

Given how badly the dollar is doing it’s not really possible to adjust currently for that. Notice the increase in nominal price after we severed the last connection to the gold standard.

Lukken told reporters after the hearing that the 71 percent figure cited by the committee includes speculators and swap dealers, usually large banks that help facilitate trades.

Those swap dealers are not always working on behalf of speculators, Lukken said, adding that Morgan Stanley handles risk management on futures markets for United Air Lines Inc.

Dingell, a Michigan Democrat, said Congress should explore “a full range of options” to limit speculation, including raising margin requirements for financial speculators to 50 percent, preventing pension funds from investing in commodities and prohibiting investment banks from owning energy assets.

Intervention, which causes or exasperates the problem, leads to more intervention and more distortion and more problems. If these people actually wanted to “help” as they claim the only reasonable approach is leaving it alone and withdrawing intervention. They have been presented with the evidence yet choose the path which conflicts with their claims. I can only assume they are not concerned with the wellbeing of the US subjects.

Record prices have prompted a slew of bills to curtail the role of investors, but traders say they could backfire:

NEW YORK (CNNMoney.com) — Fed up with soaring oil prices and a chorus of people blaming Wall Street speculators, Congress is considering a host of rules aimed at limiting the inflow of investor money into oil contracts.

But oil traders urge caution. While more disclosure is a good thing, they say making it harder for speculators to invest in oil futures could have the opposite effect intended, and send prices higher.

In light of oil’s phenomenal climb from under $50 a barrel to nearly $140 in less than 18 months – and the public belief that Wall Street traders were behind the rise – Congress is awash in bills that attempt to limit the role of speculators. Several have bipartisan support and could soon become law.

“In two days, the price of oil rose $16,” said Sen. Richard Durbin, D-Ill., at a joint hearing of two Senate panels on oil speculation Tuesday. “Did I miss something, was there some war in the Middle East?”

Read More…