I've blogged on this before. The argument is flawed for several reasons.
- The assumption that the relationship runs from speculators to oil prices is a classic case of confusing correlation with causality.
- It makes little sense that highly informed traders would bid the price of oil up way beyond its fundamental value. If they did, they would expose themselves to monumental risk of the price collapsing.
- Most oil speculators are trading futures contracts. As a result they never actually take delivery of the oil. It is hard to manipulate a market if you don't actually take possession of the commodity.
- The presence of more speculative traders makes it far more likely that a bubble in oil prices would burst sooner rather than later for the simple reason that bursting the bubble would make a lot of traders who bet against high oil prices very rich.
- The argument that shows that US refineries are not running at peak output and that US demand is down completely ignores the global demand for oil which is increasing steadily.
- The biggest "speculators" are the oil companies themselves who choose not to refine more oil and instead keep it in their reserves. They just understand that real options have value.