"Dramatic swings in crude oil prices have led Congress to examine the functioning of the markets where prices are set. A particular concern is that financial speculators may at times drive prices above the level justified by supply and demand. Most oil speculators do not produce or take delivery of commercial quantities of oil; rather, they trade financial contracts whose value is linked to the price of oil. These derivative contracts--futures, options, and swaps--allow speculators to profit if they can forecast price trends or exploit new arbitrage opportunities. Derivatives also permit oil companies, airlines, utilities, and other energy-consuming or energy-producing firms to reduce or 'hedge' price risk by locking in today's price for transactions that will occur in the future. Hedgers and speculators trade on regulated futures exchanges in a continuous auction market. Prices set there serve as benchmarks for many physical oil transactions. […] This report examines the relationship between the price of oil and the positions of various classes of traders in crude oil futures and options. Position data come from the Commitments of Traders report, published weekly by the Commodity Futures Trading Commission (CFTC). A statistically significant correlation is evident between changes in positions held by 'money managers' (a category of speculators that includes hedge funds) and the price of oil. In other words, during weeks when money managers have been net buyers of oil futures and options (or increased the size of their long positions), the price has tended to rise."
CRS Report for Congress, R41902