Are speculators to blame for high oil prices?
This is a silly question but some economically illiterate people are spouting this claim.
What do oil speculators do? They puchase oil futures expecting the price will go up. As long as they expect the price to increase, the speculators will try to buy at the current price. However, if actual prices start to fall, the futures market will quickly clear. If the futures are priced higher then the market will bare, the speculators will lose money. The purpose of speculators is to buy oil when supply is high to sell when the demand is high. In this way they tend to smooth the price of oil. The smoothing is never perfect, but we have examples of markets where speculation has been banned and since the ban, prices tend to swing up and down more often.
Price swings are bad for producers. If a producer of any comodity over supplies, the market price may be too low and they may lose money. This is because of increasing marginal costs. If a producer supplies too little and the price is higher, the producer may lose out on potential profit.
Speculators prepurchase from the producers. In this way, the producers are guaranteed a set price and do not have to worry about the actual market price.
Speculation plays an important role in our economy. Stable prices ensure that producers make fewer output mistakes that might force them out of business, protecting jobs and ensuring a stable supply for consumers. Producer benefit, consumers benefit and speculators benefit.