Mavericks owner Mark Cuban blogs that banning speculators
from the commodity futures markets would, in his opinion, reduce oil prices. He argues that only those who are actually using oil and gas should be allowed to participate in the futures market:
How to lower the price of gas.
Very Simple. Take out the speculators.
Make it a requirement that only those who actually are hedging their use and sale of oil and gas are able to buy and sell oil and gas futures.
In his comments, an interesting debate ensues as basically everyone there disagrees with him. I was more educated after reading it than I was before, which is why I proffer this link. Some of my favorite snippets from the comments:
You have two big misconceptions about commodity futures. First, without speculators there would be very little liquidity in the market--there are no market makers in commodities as there are in at the NYSE--without speculators, who would take the other side of the hedgers trades? Commodities are a zero-sum game--one side wins, one side loses.
Secondly, although there are finite amounts of commodities, there aren't limited amounts of futures contracts. If you want to buy an oil futures contract, no one will tell you that they're all gone. Now where it DOES come into play is if people decide to take delivery of the commodity. At that point, and speculators never want to get to that point, you must take physical delivery and there can be attempts to corner the market. The exchanges never let that happen (see the Hunt brothers and their attempt at cornering silver in the early '80s).
Also, if only producers were allowed to hedge, who would take the other side of those hedges??? That solution doesn't make any sense to me because it seems to take away the very liquidity that speculators provide.
I think big suppliers of oil, and major consumers of oil, know whats going on in the market, and the true supply and demand. They have all the information and the speculator really has very little. So any nice trades they can pick up pushing the market, and popping spec's stop/losses will just line their pockets all the more. And leave the gambling to the speculators. It's just a transfer of dollars, from people who don't have the facts, to people who do.
and my favorite:
The only way to have even a basic understanding of oil and the energy industry is to DO THE RESEARCH. It is obvioius that most posters, along with Mr. Cuban, feel qualified to explain the oil industry wihout doing the homework first. When I read Mr. Cuban's posts on digital music distribution, internet search engines, etc. I get the feeling his opinion is valuable because he has done the research/has the proper experience. I may not be as smart as Mr. Cuban or some of the responders, but I have done the research - hundreds and hundreds of hours worth. Here is what my research has taught me: Easily refinable oil is being pumped at close to capacity worldwide; the refining industry is close to capacity worldwide; the CENTRAL reason new refineries are not being built on a regular basis worldwide is because the future growth in supply likely isn't there.
(Emphasis mine). It didn't even occur to me before that one reason for the lack of new refinery-building is that there's nothing new to refine.