Gas prices are pushing our government to do something rash.  Folks who are already feeling the crunch from poor credit management to declining equity in housing to fear of job loss and wage reduction are barking for congress to “do something” about gas prices.  It’s understandable.

However, a witch hunt to blame high prices on everything from price gouging at the local level to unreasonably high profits at the national level to speculation on wall street is shaping up to do us more harm than good.

The only thing that will reign in speculation is supply outweighing demand.  If oil storage levels start to increase instead of decrease, all the speculation in the world can not keep crude prices elevated to these current levels.

Futures trading is taking the rap for higher oil prices, and if our government doesn’t back off, the futures trading will move overseas where commodities regulation is nearly nonexistent.

In fact, it’s already happening.  On Tuesday the Dubai Gold and Commodities Exchange will start trading West Texas Intermediate and Brent crudes under the tickers DWTI and DBRC and they’ll trade from 8:30 a.m. to 11:30 p.m. local Dubai time.

One of the major benefits to opening this location up to crude is the proximity to vast portions of the worlds oil supply. The other is the move away from irrational government oversight bent on manipulating a world market for oil.

“Speculators create liquidity and help make efficient markets and any attempt to interrupt the free workings of a market would be dangerous as it would hinder the operation of a free market and create market inefficiencies,” says Mark O’Byrne, a director at Gold and Silver Investments Ltd. in Dublin, Ireland.

Regulators should be wary of unnecessary intervention in financial markets, including commodity markets, with increasing competition from financial markets internationally such as Shanghai and Dubai, he said.

“It would be wise not to kill the goose of an efficient market that lays the golden egg of an efficient economy,” he said. -Source

Unwise market regulation by the United States will only push trading activity further away leaving the U.S. government even less influential than they already are.

Tags: commodities | futures trading | oil | speculation

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