“Speculators” Drive Oil Price Lower

Usually, gamblers make their when speculating on commodity prices by betting that the value will rise, allowing them to sell their holdings at a profit. Whilst it is entirely possible to make a killing by shorting the market, usually it is done on the share markets rather than on commodities. However, according to a story on the BBC, Gulf State Oil ministers (some anyway) are blaming the collapse of the oil price on speculators.

The received wisdom as to why the oil price has collapsed from a 2014 peak of $114 in August to $61.4 currently per barrel for Brent crude is weak demand, a glut in production (plus new shale oil deposits coming on line) and high stock levels. It is not easy to see how this can be attributed to speculators.

Ali al-Naimi is Saudi Arabia's oil minister and he placed responsibility for the collapse of the oil price, by more than 40%, on speculators and factors external to Opec through: “the spread of misleading information and speculation” He dismissed rumours that his country had precipitated the collapse for (unspecified) political reasons and reiterated that the world's largest producer of crude oil would not be reducing production: “We are not going to cut, certainly Saudi Arabia is not going to cut.” His Kuwaiti opposite number, Ali al-Omair reiterated the point during a meeting in Abu Dhabi on Sunday: “I don't think we need to cut. We gave a chance to others [and] they were not willing to do so.”

Opec left daily production quotas unchanged at its November meeting at 30 million barrels per day. Conspiracy theorists speculated that the decision could be aimed at undermining North American shale oil production or to hit the oil revenues of Iran and Russia (which of course it has). The more prosaic reason is likely to be that a consensus simply could not be found between Opec members.

Mr Naimi noted: “Current prices do not encourage investment in any form of energy, but they stimulate global economic growth, leading ultimately to an increase in global demand and a slowdown in the growth of supplies.”

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