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Wall Street Lobbies to Protect Speculative Oil Trades
Jeffrey H. Birnbaum, Washington Post
Wall Street banks and other large financial institutions have begun putting intense pressure on Congress to hold off on legislation that would curtail their highly profitable trading in oil contracts -- an activity increasingly blamed by lawmakers for driving up prices to record levels.

Representatives of Goldman Sachs and Morgan Stanley, along with the trade associations for hedge funds and other financial groups, have lobbied the offices of key legislators, briefed senior staffers on committees that oversee pivotal parts of the energy markets and distributed research materials explaining their view about oil and how it's traded.
(19 June 2008)

Commentary on speculation from McCain advisor
Original: Lieberman Makes Risky Bet in Speculation-Ban Bid
Kevin Hassett, Bloomberg
... As a speculator moves in and out, he might increase harmful price volatility. Yet even here, the case is unclear. Indeed, the argument against Masters and Soros was first made by Milton Friedman in 1953. Friedman, in his classic treatise advocating flexible exchange rates, pointed out that speculation has to be stabilizing if speculators are making money. If speculators know that the price of something is going to go up a month from now, they buy today. If they are correct, they make money, and the price change is smoothed by the higher demand today.

It is easy to connect this argument to current oil markets, and to make the case that institutional investors have served the common good.

Institutional investors might, after all, have recognized early that world demand is going to drive oil prices up enormously in the future. By loading up on futures, they pulled some of the price increase forward to today. This change is beneficial for society, as it forces consumers to conserve sooner, and suppliers to search for new deposits.

Friedman's logic is irrefutable. If speculators are, as is popularly believed, brilliant tacticians who are making a killing, then their activities are stabilizing. Speculation is good.

If they are rubes who are going to lose it all, then there might be a role for a policy as draconian as Lieberman's ban. Speculation is bad.

Which way will it go this time? The answer will be revealed to us over time through prices. If prices plummet in the future, and that drop is exacerbated by a rush to the commodity market exits by institutional investors, then Masters and Soros will have been right. If prices stay high and even increase from here, then Friedman will have been right.

Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He is an adviser to Republican Senator John McCain of Arizona in his bid for the 2008 presidential nomination. The opinions expressed are his own.
(16 June 2008)
More on the subject by Mark J. Perry at Seeking Alpha: Economics of Oil Futures Trading, Part II.

Myth-makers caught short in oil speculation
R M Cutler, Asia Times
As in military science there is the danger of "fighting the last war", so in economic science there is the danger of puncturing the last bubble. This is especially hazardous when what one has is not, in fact, a bubble. Then, the myths of such a bubble are what need puncturing. So it is today with oil prices, which this week hit a record US$139.89 a barrel.

... None of this is to say that oil prices may not fall in the future, and even fall importantly. Possibly prices will spike still higher, and then appear to crash, relatively speaking. But it is hard to keep an unsubstitutable commodity down for long.

R M Cutler is a Canadian international affairs specialist.
(18 June 2008)