House Democrats have continued their efforts to keep the notion of oil speculation driving the run-up in gas prices at the head of the national conversation. Yesterday, the House Democratic Steering and Policy Committee held a hearing on over-speculation and its impact on the market, attended by, among others, Democratic Leader Nancy Pelosi. In remarks at the top of the meeting, Pelosi said, “Experts have been clear: Wall Street speculators are artificially driving up the price at the pump and causing pain to millions of American consumers.”

That was the theme of the hearing, which took testimony from several expert witnesses.

“The cost of gas is … irrefutable affected by rampant speculation in the oil market,” (Chairwoman of the steering and policy committee Rosa) DeLauro said. “That is something that we can, and should, do something about.” [...]

Appearing before the panel, Michael Greenberger, University of Maryland law professor and former head of the CFTC’s division of Trading and Markets, told lawmakers bluntly that supply-and-demand issues are not the cause of the recent spike in fuel costs.

Rather, he said, Wall Street traders are driving the price up just for the sake of driving the price up.

“Gamblers, wearing Wall Street suits, have taken these markets over, are controlling the price and create investment vehicles that are designed to push the price of oil up,” he said.

How it works is that oil futures speculators bet on the future price, and because of the peculiar way in which the market for oil is structured, this ends up having a near-term effect. We know that today, 65% of the futures market is controlled by speculators who never take physical possession of the product. Gene Guilford, head of the Independent Connecticut Petroleum Marketers Association (ICPA), went quite far in his remarks, saying that “If you have no intention of taking or making delivery of the commodity you are trading, you shouldn’t be allowed to participate in the market.”

Democratic Senator Bill Nelson took this fight directly to the Obama Administration, saying that Gary Gensler had to crack down on speculators or quit his job:

In a letter sent to President Obama, Nelson said Gary Gensler, the chairman of the Commodity Futures Trading Commission (CFTC), needs to implement new restrictions on speculation or lose his job.

“Mr. President, if CFTC Chairman Gary Gensler doesn’t act soon to implement rules that will cut down on speculation in the oil futures markets, then you should consider not reappointing him,” Nelson wrote.

Gensler’s three-year stint as head of the CFTC will expire April 13, but he can stay on the job until December 2013. While he has said he plans to stay on beyond that expiration date, he has not yet said whether he would seek a second term or if the White House is planning the same.

One problem is that the CFTC’s agency budget has been clipped over the past year making it difficult to implement anti-speculation rules. Still, Dodd-Frank mandated that CFTC set rules on position limits (setting the maximum amount of the market that speculators could hold) over a year ago, but they have not been put into place. CFTC issued a fairly weak position limits rule last October, but must join with the SEC to promulgate the rule. So CFTC may be the wrong target.

I don’t think there’s any doubt that there’s a clear political element to this fight. Democrats want to deflect blame on the President’s energy policies by bringing up this issue of speculation. But that doesn’t mean that speculation is illegitimate as an explanation for the run-up in oil prices. In fact, it explains a whole lot.