* Actually, they don't buy and sell oil; they buy and sell digital contracts that allow the holder to take delivery of some oil on a given date. The whole point, for a speculator, is to not be left holding the contract on the maturity date. By definition, they don't actually want the oil. They just want to be able to buy the contract for slightly less than they can sell it, thus taking a nibble out of the actual oil users' profits.
Over the last few months, it's been the position of most center-left and sustainability-minded economists that speculation could not possibly be playing a major role in the actual price run-up in the oil market. Here's why: speculators buy and sell futures, not oil for immediate use; after all, they don't want to use the oil. If they buy in the spot market, or if they buy in the futures market and then can't flip the future before it comes due, they have to take delivery and find someplace to store the oil until they can sell it. So, instead of just looking at the futures market, look at its relation to the spot market, where oil is purchased for immediate delivery.
If future prices were well above spot prices, there'd be an incentive for people with oil to sell a future contract and hang onto the oil; as long as the spread between spot and future is larger than the storage cost, they make money. However, spot prices were actually higher than futures prices, so there was no incentive to hoard. Prices were just responding to basic supply and demand, not to people on the sidelines laying bets on what would happen next month. Unless you actually change the amount of oil in the market, speculating has no impact. And there's no evidence that anybody was hoarding inventory. (They would've had to hoard a heck of a lot, to drive the price up from $100 to $140. A study I saw a couple months back, which I'll look for, to see if I can add a link, suggested that there's not enough storage in the world that anybody could sock away that much oil that fast. Pro-speculation-theory folks respond that production could fall, thus storing the oil in the ground, but there's not any evidence of that either; production in some places rose, in others stayed constant, and in the US continued falling, but only in line with expected depletions -- the more oil you pump out of a field, the harder it becomes to extract the remainder, so in the absence of big new finds, supply has to fall over time.)
So, why did oil prices finally start to fall again? That's easy: high prices finally impacted demand. US oil consumption, which normally grows regardless of price, actually cut back sharply, back to the levels of 2003, rolling back five years of growth. When you cut demand, prices fall. Duh.
In the meantime, the Democratic Congress closed a trading regulation loophole, called the Enron Loophole because it was one of the things that company was exploiting in its own market manipulations. Was that loophole probably bad? Yes. Might it have contributed some to the price run-up? Yes. Was it likely responsible for more than a small portion of the price shift? No, for reasons outlined above.
And it's really irritating to think that now people are going to think that the speculation theory has been validated -- loophole closed, prices fell, we can get back to our regularly scheduled drill'n'burn lifestyle! -- when in fact it's still simple supply and demand. We can't get complacent about the need to be more efficient (get yourself a tire gauge -- the GOP is giving 'em out for free *g*) and act like this is just a temporary crimp in our energy-intensive lifestyle. We can't drill our way out of the current mess. Unless oil consumption falls, and keeps falling, oil prices are never going back below $100/barrel.
ETA, post-financial-implosion: In case you're wondering, yes, the financial crisis has driven down demand drastically.