Morning:
8°c
Prime Minister Gordon Brown and French President Nicolas Sarkozy today demanded a new investigation into how much speculators have been responsible for wild gyrations in world oil prices over the past two years.
"Governments can no longer stand by," they argued. "Volatility damages both consumers and producers. In Britain and France we know how the price of crude dictates the price of petrol at filling stations and the effect on families and businesses."
Brown and Sarkozy said oil prices, which have surged between $35 a barrel and $147 a barrel in the past 24 months, defied "the accepted rules of economics" and "could undermine confidence just as we are pushing for recovery".
The two leaders called for experts and regulators to "look again into the question of whether trading activity is amplifying erratic price movements".
They called on the International Organisation of Securities Regulators (Iosco) to "consider improving transparency and supervision of the oil futures markets to reduce damaging speculation and to take forward the recommendations already made by its task force in March".
The Madrid-based Iosco set out guidelines for how national regulators could beef up their oversight of commodity markets in the spring but little has happened since.
"This would serve the interests of orderly and adequate investment in future supplies. Volatility and opacity are the enemies of growth. In the absence of transparency, consumers and importing nations are losing confidence in oil," it said.
The two leaders' call followed Washington's move last night to hold hearings on whether or not to introduce tough rules for oil futures markets. Plans by the Commodity Futures Trading Commission drew fierce criticism from traders and hedge funds threatened with limits on how much they can bet on a single commodity at any one time.
There is growing belief among oil-producing countries and some of the biggest importers that speculators have succeeded in driving prices up artificially so they take huge chunks of profit away from the underlying industry.
Brown and Sarkozy, writing in today's Wall Street Journal, warned: "Extreme fluctuations in price are encouraging energy users to reconsider their reliance on oil. The International Energy Agency, for instance, has cut its long-term forecast of oil consumption by almost a quarter. Producers are in danger of finding that their key national resource loses both its market and its long-term value."
But the entire world is also at risk from volatile crude prices, they argued: "The world's economy is still reliant on secure supplies at prices that are not so high as to destroy the prospects of economic growth but not so low as to lead to a slump in investment, as happened in the 1990s. We are convinced that producers and consumers alike would benefit from greater transparency, greater stability and greater consensus on the market fundamentals."
Reader views (11)
Like all the other comments, i've been infuriated over this punting. 'A cyclone may hit Florida', up go oil prices, why ? it's the punters. Oil futures should only be available to actual users, like airlines. They suffer in this madness, as do passengers. Gotta go i just heard 6 palm trees have fallen in nigeria, better trade.
- Max Shean, sydney australia, 09/07/2009 01:10
Report abuse
The chief energy analyst of the International Energy Agency, Laurence Eagles, told a congressional enquiry last year that the oil price rise was due to supply and demand and not speculators. "We believe that high energy prices are fundamentally a result of supply and demand," he said in his testimony. Doesn't say much for the quality of his research does it? Still that didn't worry Wall Street bankers JP Morgan who gave him a job as their Global Commodity analyst.
- Mrs Jackson, London England, 08/07/2009 22:28
Report abuse
All it takes is to require that commodities, and shares in general, are paid for in cash, in advance. Nobody wants this, because too much money is made out of the dealing costs and transaction taxes. The whole options and futures world is one huge casino, hugely outweighing the daily trade in real assets.This is why the government quietly made gambling debts pursuable in law a few years ago, before someone blew up the entire game by refusing to pay on a contract for difference, or some other virtual asset, because it was a gambling debt. I'm surprised noone else made this observation at the time.
- Mdj E10, london uk, 08/07/2009 14:39
Report abuse
The speculators have succeeded in convincing gullible politicians that the oil price is not significantly impacted by speculation. The oil price is a futures price based on flawed futures contracts. The flaws allow the net flow of money into the contracts to determine the price - not the underlying supply demand of oil as should be the case. Speculators benefit at the expense of the economy and consumers. Is it not strange that Goldman Sachs forecasts the oil price and not BP Exxon or even OPEC. The oil companies stay quiet on the subject of speculation because they know which side their bread is buttered on. I am willing to wager that not one of the commitees set up to investigate speculation in oil will spend much time on the futures contract structures which are the key to understanding how the speculation works. To stop speculation impacting the rpice of economically critical raw material like hydrocarbons the politicians need to insist on the oil futures contracts being revised in line with the provisions of other commodities futures contracts which do not result in prices that are totally divorced from underlying supply and demand.
- Roberto, Geneva Switzerland, 08/07/2009 14:25
Report abuse
The people whom Jesus caught speculating in the Temple are the culprits I would guess.Its what they do
T H Leeds
- Thomas Hayes, Leeds UK, 08/07/2009 13:06
Report abuse
GB stop playing the blame game. If it that easy to chase the oil price why don't the government do it themselves or maybe they have and lost? Yes there is speculation in there unfortunately but that is the Market Economy we live in. It is also unfortunate that speculators are hedge funds whose investors are the filthy rich. So the rich get richer and the poor remain very sensetive to oil price. We need a few more people like Madoff who still from the rich to scare of the speculators.
- Steve, havering, 08/07/2009 12:46
Report abuse
Replace speculating with gambling. These over-paid charlatons are screwing us all and its about time it stopped. Long over-due. If you have no physical interest in terms of taking delivery of oil you should not be involved in its trade.
- Darren, london, 08/07/2009 12:44
Report abuse
Glad you have finally woken up after all these years of oil price volatility. Is there an election round the corner?
- Dave Davies, Basingstoke, Hants, 08/07/2009 11:22
Report abuse
Bit late, aren't you Brown? What have YOU been doing about it? Sitting on your hands? You don't like or want regulation in reality, just like you stated to the CBI in Nov 2005:
'The new model of regulation can be applied not just to regulation of environment, health and safety and social standards but is being applied to other areas vital to the success of British business: to the regulation of financial services and indeed to the administration of tax. And more than that, we should not only apply the concept of risk to the enforcement of regulation, but also to the design and indeed to the decision as to whether to regulate at all.'
'whether to regulate at all', Brown? Shows your duplicity, does it not? And reveals you are insincere and incompetent and can't EVER be trusted.
- Fred, London, 08/07/2009 10:53
Report abuse
Yes, it's called the "Market Economy", and it's the same market economy which these same leaders, until recently, were insisting would solve all our problems.
- Kate, London, 08/07/2009 10:19
Report abuse
You only have to have worked at a hedge fund in London to know how much speculation goes on. They chase the price up and chase it back down, they win twice and everyone else loses.
- Andy Davids, London, 08/07/2009 09:45
Report abuse
