Would tighter controls on speculators cut oil prices in half?

Nobody knows what proposed tough new regulations for oil and other commodities speculators would do to the prices of oil, corn, soybeans and wheat, but a lot of people are speculating that prices would drop as much as 50%.

That speculators, especially index funds and institutional speculators such as pension funds and hedge funds, are very likely to face much tighter regulations was made clear Monday during Congressional hearings on the roles of speculators. MarketWatch reports here. The Christian Science Monitor reports here. Bloomberg reports here. Reuters offers links to dozens of stories here.

Already, apologists at The Wall Street Journal and on Wall Street are claiming that curbing speculation would do little good and that speculators would get around any regulations imposed by Congress.

I think curbing institutional speculators by imposing position limits would help reduce price volatility and the price of oil. And I don’t think institutional speculators could get around the new regulations, especially if they were replicated around the world, as they most likely would be.

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