With politicians facing huge voter flack for rising oil prices, they're looking around for someone to blame. With free trips to the Olympics coming up they have to be nice to the Chinese, so the scapegoats of the moment are the speculators.

Folk like Italy’s finance minister Guilio Tremonti (who calls speculators the ‘plague of the 21st Century’) wants action against them, invoking Article 81 of the European Treaty, outlawing ‘anti-competitive agreements’. EU President Nicolas Sarkozy seems to be supporting the move. And Article 81 rulings can be made by majority vote, which is bad news for the UK, with its enormous financial services sector. Meanwhile Germany's Social Democrats want curbs on asset-stripping 'locusts' like private equity and hedge funds. A 'Stop Excessive Energy Speculation Act' has been introduced in the Senate.

Commodities futures are complex, which makes them an easy target for politicians. But these attacks are grounded in complete ignorance of what speculators do.

Yes, speculators take a bet on future prices. But to survive, they have to be highly informed about the supply and demand conditions they bet on. They don’t bet on rising prices unless they think that (real) demand is going to outstrip (real) supply. They certainly can't afford to bet on rising prices just because other people do. As home-owners have found to their cost, you can bet on rising house prices and make a lot of money, but if you don't understand where the market is going and get out in time, you can lose a lot of money too.

The bets – the forward contracts – that speculators offer are therefore a really good, informed indicator of where supply and demand, and therefore prices, are actually heading. That enables suppliers to adjust their production to match the real needs that end users will probably have in the future. Waste and shortages are avoided. It also reduces the volatility of markets, because suppliers can agree future prices now, and produce to that price with confidence. (If you want to know more about how speculation benefits markets, see my new book The Best Book on the Market.)

The reason that oil is going up is because China and others are using more of it but production is pretty well static. That's not going to change because a bunch of EU politicians outlaw speculation. Let's hope is doesn't take an EU ruling that kills off London's financial sector before people find that out.