Would a federal law reguiring someone purchasing oil futures to have sufficient storage capacity to store the purchase prevent the Ponzi scheme effect of trading these futures that we are all...

Would a federal law reguiring someone purchasing oil futures to have sufficient storage capacity to store the purchase prevent the Ponzi scheme effect of trading these futures that we are all suffering from?

Asked on by mattepple

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

A law like the one you ask about would certainly curtail speculation in oil futures.  However, it is not at all clear that this would lead to reductions in oil or gasoline prices.  There are conflicting claims in this regard.

One side of the argument claims that speculation leads to increased demand for the futures, thus driving up their price and that of the oil.  However, economic researchers doing in-depth studies argue that their research shows that there is no connection between speculative activity and higher prices.  I tend to believe in the research.  Speculators are betting that the price of oil will rise.  But if they are doing so without reason, other speculators will bet against them and they will lose.  Unless speculators are conspiring (hard to do and illegal) speculation should not be able to raise prices of the commodity.

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