Wait, what? How speculation drives up prices is economics 101, but yes commodities bubbles can and do burst, which is also a huge problem. The amount of money that has been invested into speculation has increased enormously in the last 10 years. When you have a larger amount of money competing for a (relatively) fixed supply of a product, prices increase. You do realize now that the major majority (like 70%) of the money invested in commodities is no longer used to actually buy the product, right? It exists purely to speculate on its price. You have more than doubled the amount of money vying for a product, but don't expect that to contribute to price increases?
This appears to be classic speculative bubble behavior, and we've already seen enormous volatility in a number of prices, sometimes varying by more than 50% in a single year. This is simply another example of foolhardy financial deregulation that's coming back to bite us in the ass. More government is needed.
You do not understand speculation other than on a superficial level.
You're describing demand, yet you do not know what drives it other than a profit motive or the word 'speculation' which you seeming believe is somehow magical. You see, a profit motive alone is insufficient. Why do they, speculators, believe the profit opportunity exists? Just because of their 'speculation'?
If their expectations of demand/supply are unfounded, the only thing that could possibly keep the bubble going is an ever increasing amount of (unfounded) speculation. Where does this parade of highly capitalized individuals who are willing to 'carry the torch' and pump higher amounts of money into the oil futures market come from? Is there an endless supply?
At the first decline you would wipe the speculators out, much like those entering the R/E market late. They would be long on positions that they can't take delivery on and would be forced to sell at a loss.
There are only two scenarios I see: (1) Their demand/supply expectations are wrong in which case the bubble will burst. It will be sooner rather than later given the enormous of capital required to keep it inflated. Or (2) They are correct, and, if so, at worst they are somewhat accelerating the inevitable price increase.
Accelerated permitting will defeat either of the above. The bubble will burst sooner, or if they are presently correct their calculations will necessarily change.
Otherwise, the obvious regulatory step is to increase the margin amount on oil futures. I assume I needn't explain why this would be effective without creating much downside for all involved, including legitimate players. Conservatives/business people have been suggesting this for some time now.
Fern