Energy prices could be cut in half if specualtion was reined in

We have discussed a couple times that oil company execs have repeatedly claimed that the equilibrium price for oil should be around $55 a barrel and prices are being driven up by speculation. That view go a boost in congressional testimony testerday.

Testifying to the House Energy and Commerce Committee, Michael Masters of Masters Capital Management said that the price of oil would quickly drop closer to its marginal cost of around $65 to $75 a barrel, about half the current $135.

Fadel Gheit of Oppenheimer & Co., Edward Krapels of Energy Security Analysis and Roger Diwan of PFC Energy Consultants agreed with Masters’ assessment at a hearing on proposed legislation to limit speculation in futures markets.

Krapels said that it wouldn’t even take 30 days to drive prices lower, as fund managers quickly liquidated their positions in futures markets.

“Record oil prices are inflated by speculation and not justified by market fundamentals,” according to Gheit. “Based on supply and demand fundamentals, crude-oil prices should not be above $60 per barrel.”

So the oil company execs say out of control speculation is the problem, financial market experts say speculation is a problem, even Ben Stein says speculation is a problem (Jun 19th on the Radio factor)



This is one of those cases where a totally hands off approach is probably the wromg thing.

This isn't to say that supply and demand is not a contributing factor here. As I understand the market if there was the ability to increase demand the supply to meet increased demand then the speculation would not be able to have such an impact. The same situtaion that occured with Enron and the energy markets.

Note: corrected the above strikeout