The oil speculation market is about nothing of the sort. It’s about profit. I have no problem with that. I have a problem with the fact that their “paper oil” is confused with real oil. Oil demand, for example, is about as inelastic as any commodity. Saying that speculators are betting on large changes in demand is pure folly. Now, you might argue that they are betting on changes in supply. Well, check here:
http://www.indexmundi.com/energy.aspx?product=oil&graph=production
Dating back to 1981, the biggest drop in year to year oil production was 5.92% (from 1980 to 1981) while the biggest jump was 4.88% (from 2003 to 2004). In other words, BOTH SUPPLY AND DEMAND ARE INELASTIC. No sane person can look at the actual numbers and find that the massive swings in prices are justified.
Are you honestly making the claim that speculation prevents airlines from hoarding oil? Speculation doesn’t prevent anyone from hoarding real oil nor does it in any way prevent shortages. It is simply a manipulation of the actual demand. Also, the entire elimination of speculation (which is not what I am arguing) would cause the price of oil to stabilize around what the market will bear. The producers are limited as to what they can charge by what the actual demand is (not artificial demand).
This is really not a hard concept.
Markets shouldn’t be that hard a concept for you either. Even Newt mentioned something like a 10% change in supply in natural gas cratered the price by over 50%. Small differences in supply can make a big difference in price in any direction. And, yes, they are watching the market to anticipate changes in supply (Middle East turmoil, accidents, government exploration) or demand (economic booms or busts). It’s not just airlines, you could have governments like China or India hoarding oil as well. The speculators keep the oil priced too high for hoarders to grab it, making sure the world will have the available supply it needs even when demand is high, thanks to them keeping the price at a reasonable market level. Because it’s better to fill your tank at a high price than not be able to fill it at all.
This is an economy. If a commodity gets scarce, we need to know about it as early as possible, or anticipate it so we can plan accordingly. It’s working well, as we already have our politicians pushing to drill for more oil in anticipation of likely shortages, which might give enough lead time to stave off a real crisis. And if you don’t think potential nuclear war in the Middle East is a crisis that will impact oil supply, you’re being irrational. The markets are working. The markets are telling us we’d be better off economically producing more oil domestically, and they’re right.