The oil futures market is getting a lot of the blame for the rise in oil prices, and “evil” “speculators” are the politicians’ news boogeyman.
But, the truth is, it seems, quite another story:
NEW YORK (CNNMoney.com) — An influential oil-policy group released a report Tuesday arguing that the increase in oil-market speculation is not driving up crude prices. But the study far from ends the debate.
Since 2003, the volume of investment funds in commodity markets - especially oil - rose from about $15 billion to $260 billion, according to the International Energy Agency (IEA), which issued the report.
And many argue that all that extra money sloshing around is to blame for prices doubling from $71 last July to roughly $140 today.
The IEA isn’t buying it.
“There is little evidence that large investment flows into the futures market are causing an imbalance between supply and demand, and are therefore contributing to high oil prices,” the report said.
Instead, the IEA put the blame for higher crude prices squarely on strong growth in demand coupled with limited growth in supply.
“If supply is constrained and demand is increasing, prices have to rise,” read the report.
The IEA argues that if speculation drives prices too high, the market would be unbalanced. Either demand would fall off, or stockpiles would rise. Neither has happened.
In fact, global demand for oil products has surpassed supply in every quarter since the fourth quarter of 2006, according to the U.S. Energy Information Administration
And thus, quite logically, the price has gone up.
Does this mean that the oil markets are a completely free market ? No, of course not.
There are plenty of distortions that exist, all of them created by government at one level or another. But, in the end, it’s the market that is determining the price we’re paying today, not some vast unseen conspiracy.
July 2nd, 2008 at 11:56 am
With the price of oil now over $140 per barrel and the increasing demand from the emerging economies unlikely to see a decrease in the near future, do you think OPEC can have any influence in bringing the price down?