[legion]

I was pondering the other night...

Energy traders are pretty much ignoring the underlying supply/demand numbers when bidding up the price of crude. Demand is weak, supply is more than adequate, yet they seem to ignore this and only react to negative news.

The problem is there are too many speculative dollars in the crude futures markets.

Now, I don't want to ban speculators from trading crude futures. They do serve some valuable purposes: they absorb risk and help keep markets liquid. But right now, we have too much liquidity in that market.

What does the Fed do when there is too much liquidity? They raise interest rates to limit the supply and make money more expensive. There are also fractional reserve requirements on banks to maintain minimal liquidity in cash.

In a similar vein, I propose we limit the number of speculative dollars in the crude market to a certain percentage of market capitalization. That means that after the oil producers and refiners, people who never intend to produce or receive only a given percentage of the dollar amounts of future contracts. I was thinking that limiting speculators to 25% would be a good place to start.