KENNEDY II APRIL 10, But there are factors contributing to the high price of oil that we can do something about.

How does oil speculation raise gas prices? | HowStuffWorks

These middlemen add little value and lots of cost as they bid up the price of oil in pursuit of financial gain. Today, speculators dominate the trading of oil futures.

Does Speculation Drive Oil Prices? | Resources for the Future

According to Congressional testimony by the commodities specialist Michael W. Masters in , the oil futures markets routinely trade more than one billion barrels of oil per day. Pure speculators account for as much as 40 percent of that high price, according to testimony that Rex Tillerson, the chief executive of ExxonMobil, gave to Congress last year.

That estimate is bolstered by a recent report from the Federal Reserve Bank of St. The same concern explains why the United States government placed limits on pure speculators in grain exchanges after repeated manipulations of crop prices during the Great Depression.

The market for oil futures differs from the markets for other commodities in the sheer size and scope of trading and in the impact it has on a strategically important resource. 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. Higher oil prices act like a choke-chain on the economy, dragging down profits for ordinary businesses and depressing investment.

View all New York Times newsletters. The commission granted an exemption that ultimately allowed Goldman Sachs to process billions of dollars in speculative oil trades. By , eight investment banks accounted for 32 percent of the total oil futures market.

Ban ‘Pure’ Speculators of Oil Futures - The New York Times

According to a recent analysis by McClatchy, only about 30 percent of oil futures traders are actual oil industry participants. In the wake of the economic crisis, the Dodd-Frank Wall Street reform law required greater trading transparency and limited speculators who lacked a legitimate business-hedging purpose to positions of no greater than 25 percent of the futures market. Even with the restrictions currently in place, those eight investment banks alone can severely inflate the price of oil.

Federal legislation should bar pure oil speculators entirely from commodity exchanges in the United States. Eliminating pure speculation on oil futures is a question of fairness. The choice is between a world of hedge-fund traders who make enormous amounts of money at the expense of people who need to drive their cars and heat their homes, and a world where the fundamentals of life — food, housing, health care, education and energy — remain affordable for all.

Kennedy II , a former United States representative from Massachusetts, is the founder, chairman and president of Citizens Energy Corporation. A version of this op-ed appears in print on April 11, , on Page A23 of the New York edition with the headline: The High Cost of Gambling on Oil.

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