The Blame for High Oil Price... Congress and Demand.

There is a great article written by Alan Reynolds of the Cato Institute the correctly blames Congress and increased demand as the culprits in high oil prices. He also goes into detail why speculators are not to blame. In the speculative market there are two sides to every trade. Half bet the price will rise, half bet the price will fall.

Here are some excerpts:

But, much as politicians would like to blame speculators, it's just not so.

For starters, there's nothing about futures or options that makes it any more attractive to bet that commodity prices will go up than to bet they'll go down. Guess wrong on the direction, and you lose money.

And speculation that oil prices will rise rather than fall has dropped drastically since we crossed $100 mark. The "net long" position on the New York Mercantile Exchange fell from 113,307 contracts on March 11 to 25,246 by June 10 -so nearly as many traders are now shorting oil as are going long.

Speculators, in other words, are increasingly leaning toward betting the price of oil will go down, not up. So they're unlikely villains if prices do keep rising.

From November 2000 to November 2001, the volume of crude oil futures contracts in New York rose from 2.8 million to 3.2 million - even as the price of crude fell from $34 to $20.

There is no mystery behind the rise in oil prices. They rose too high too fast because of booming demand for oil for petrochemical products, electric power and shipping from many emerging economies (particularly China, India and the Middle East). Meanwhile, the supply of oil slipped in the US, Mexico, Venezuela, Nigeria and Russia.

But now JPMorgan analysts estimate that oil will drop to $85 a barrel from 2009 to 2011. Even Goldman Sachs analyst Arjun Murti, who recently guessed oil might reach $200, later told Barron's that oil will likely drop to $75 or less in the long run.

The urge to blame speculators is as big a waste of time as blaming oil companies. Americans want more oil and gas - not more hot air from politicians.