The Important Role of Speculators And Futures Markets

See Oil Speculators Are Your Friends by Jerry Taylor and Peter Van Doren in Forbes. Excerpt:

"Are futures markets a friend or foe of consumers? To hear the political class tell it during this season of soaring gasoline prices, they are clearly an enemy of nearly all mankind, a playpen for wild speculative orgies where nothing is produced--except higher fuel prices--and no services are rendered except to those who profit from the resulting price volatility.

Economists, however, argue that futures markets serve two essential functions. First, they allow us to learn about the future prices of commodities given the best information available to the market. This price discovery is helpful to consumers and investors because it assists them in deciding whether certain expenditures or investments today make sense. Second, the existence of futures markets allows people to buy insurance against price increases (or declines). Given the volatility of oil prices, the ability to purchase certainty is very useful. Allowing risk to trade from those who don’t want to bear it to those who do enhances efficiency."

Then they cite research that shows that futures markets generally reduce volatility.