As noted in this earlier post, the recent run-up in energy prices and the lingering “contango” in the crude oil trading markets — that is, futures contracts for a given product priced substantially higher than that same product for near-term delivery — has prompted the usual conspiracy claims from demagogues who seek more power through damaging regulation of the beneficial trading markets. As if on cue, the U.S. Senate Permanent Subcommittee on Investigations recently issued a report asserting that traditional supply and demand conditions cannot adequately explain current high oil prices and contending that evil capitalist roaders in the trading markets are to blame for a substantial portion of the lingering high prices.
Thankfully, the blogosphere provides a counterbalance to such demagogic appeals. In this post, University of Houston business professor Craig Pirrong disassembles the Senate report, observing at the outset:

Where to begin? The report is a farrago of facts, factoids, and falsehoods stitched together to arrive at a conclusion that is miles beyond what the evidence actually supports. Moreover, although I concur that manipulation is a potential problem in energy marketsñas it is in all commodity and even financial marketsñthe report does not even make the effort to show that current price levels are the effect of manipulation. Nonetheless, it sternly recommends a variety of new regulatory initiatives to combat manipulation, suggesting (by implication) that manipulation is the cause of high oil prices. This is a flagrant example of bait-and-switch of a variety that I imagine that the Subcommittee members would vigorously condemn if committed by your local used car salesman.
The report (and most of the other criticisms of speculation) fails on only two points: logic and evidence. Other than these shortcomings, itís great.

Read the entire post.