FACTBOX - The great debate on speculation and oil

(Reuters) - Oil's rally to records above $145 a barrel has stirred a heated debate about the role played by speculators in commodity markets.

From the outset, oil futures markets have included participants unrelated to physical crude, but a rising tide of money from investors, chiefly pension funds, has fuelled arguments the market has been distorted.

The biggest producer countries, led by Saudi Arabia, which tend to favour fixed pricing, have blamed speculation for the extent of a rally that has seen oil prices double over the course of 12 months.

Politicians from consumer countries, facing electorates unhappy with soaring fuel costs, have said the problems are fundamental and have called for more oil and investment to ease what they see as short and longer term supply problems.

At the same time, the biggest consumer country the United States is considering a raft of bills to try to limit speculative activity, including the End Oil Speculation Act of 2008 and the Federal Price Gouging Prevention Act.

Many analysts say the debate is artificial and the volume of investment class cash reflects supply and demand.

"The question misses the point. It's semantic," said Mike Wittner of Societe Generale.

"Financial flows are based on fundamentals. The big change is that they are based on long-term fundamentals, not short-term fundamentals."

Those who believe in markets say any speculation provides valuable liquidity and ultimately will establish the price at which supply will match demand.