"Hi, I'm from the government and I'm here to help you."

Congress held hearings Monday on the role that speculators play in shaping the oil market -- specifically, the role they play in driving prices up.

Like most commodities, oil can be purchased and sold not simply for immediate delivery, but for receipt at some point in the future. The issue of the day rests in this "futures" market.

Normally, most of the players in the futures markets are industry players -- largely shippers and refiners -- who simply are planning ahead. After all, why purchase crude oil at the last second and risk that none will be available when one can purchase a futures contract that will ensure delivery in, say, September? If August rolls around and it turns out you do not need all the crude you in effect pre-purchased, one can simply sell the extra futures contract and buy a new contract for October delivery. In essence, it's the industrial equivalent of keeping a spare can of gasoline in your garage.

But there are other players in the futures markets, too: investors who have no intention of ever taking delivery of any shipment. Instead, they play the market in a bid to profit from price fluctuations. Such speculators used to be marginal players, but right now there are a lot of these folks. Some estimates put them at more than two-thirds of total traders by volume. Part of this jump is thanks to the subprime lending mess. When the mortgage market cracked in late 2007, many who made their living trading mortgage securities and property fled into the energy markets.

Defenders of speculation claim that anything that increases the number of participants will increase efficiencies and lower prices in the long run. Detractors of speculation assert that -- as with any other market -- when more money chases after a set amount of product, prices rise. And in this case, unnecessarily so.

Not to muddy the waters, but both are right -- and wrong. The more market players there are, the less likely it is shocks will occur and the less severe those shocks will be. Large, deep markets tend to iron out disruptions due to sheer size. At the same time, when a large proportion of the market players do not actually ever intend to receive the product, the result is indeed a price overhang.

This raises two questions: how big of an overhang, and what to do about it?

Some of those testifying before Congress projected that without speculators the price of oil would fall by half in a month. While experience and common sense tells me that speculators are having a demonstrable impact, I have a hard time believing the oil issue is that simple.

If Saudi Arabia makes good on its weekend pledge to increase oil output, global spare production capacity will slide to less than 1 million barrels per day, a historic low. Add in remarkably robust resilience from China and the United States and a price crash seems a stretch, even though a price moderation is certainly possible (and even likely) with the right mix of regulation. Oil is scarce, oil is needed, oil has no obvious substitutes, and there is nothing that anyone can do to bring more of the stuff onto the market quickly. That is a perfect storm for expensive crude, and no amount of regulatory change is going to alter this bottom line.

Yet some level of regulation is imminent for two reasons, one structural, the other political.

Structurally, speculators serve a crucial function under normal circumstances. When stock markets hit ridiculous highs, the exuberance of speculators overwhelms the system and quickly forces a market spike to become a market collapse (think the April 2000 dot-com crash). These collapses predominantly hurt only speculators and force some much-needed rationality into the system. But in strategic commodities such as oil or food, price spikes can wreak havoc on society.

And when that happens, regulators cut in. Regulation makes the system more inefficient, but so does out-of-control speculation. Unless it is very bad regulation, however, it does not stop the forces of supply and demand from functioning. A market with runaway speculation, on the other hand, can do that.

Politically, there is more going on here than simply crude going for more than $130 a barrel, gasoline at $4 a gallon, and a summer driving season only just under way. The United States is in full election mode, neither candidate has a vested interest in defending the status quo, and there are 300 million Americans out there who are getting fed up with prices that make the Hurricane Katrina aftermath look cheap. Taking some sort of action on energy is a political no-brainer, and "speculators" are the perfect faceless foe. Congress and both presidential candidates are in the mood to act -- and act quickly.

The trick will be to hit the right balance, and that is no sure thing. If it were, it would have been done ages ago. Futures trading is an essential leg of energy markets, as in all commodities markets, and finding a way to separate those not actually interested in getting hold of the black gooey stuff from those who do will not be simple. Any regulation that fails to do just that won't just hurt speculators, it will disrupt the global energy network. And if that were to happen, $130 a barrel would look cheap indeed.