It really is time that everybody - but most of all politicians and financial regulators - understood that the price of a barrel of crude oil isn't determined by supply and demand, but by Fund Managers.
These are blokes who bet on the rise in prices of commodities and work for hedge funds, pension funds, investment banks and commodity trading firms. They don't use the oil or take delivery of it, they just buy and sell it to make profit. And their actions - the amount of money flowing in and out of the oil commodity market - mean that you and I always pay around $30 more for a barrel than we should. This is the debilitating effect that Fund Managers have on the global oil market.
Back in June Brent Crude was $80 a barrel, yet today its $107. Have the fundamentals of supply and demand changed in those two-and-a-bit months? Have the Asian, US or European economies improved? Of course not. In fact, if anything, the global economy has got worse and the supply of oil floating around the world in tankers is at an all time high. So why the hike in price?
Because back in June those Fund Managers sold their holdings to short the market, lower prices and then bought oil futures back to hike them up again. That's why we see these three monthly, or quarterly cycles, in the price. Money and capital flows in and out and prices go up and down. The market is being manipulated to cause movements in price that earn the Fund Managers profit. Buy some future oil contracts at $80 a barrel, run the price up, leak some dubious information to the media about the supply of oil from Iran being threatened or trouble with a pipeline in Sudan, and bingo, suddenly you've tickled the market up to $109 by the end of the quarter. You then sell at a profit and do the whole thing again in the next three month cycle. Look at the numbers and you'll see that $30 profit between the actual price and the rigged price coming up again and again in each quarterly cycle. Compared to the rigging of the Libor interest rate, this is persistent, regular and knowing manipulation of the price of oil for profit. And its been going on for years.
But this price rigging is much more serious now because of the damage its doing to a broken global economy. As I write, oil prices should be at $75 and we should all be benefiting from cheaper fuel due to high unemployment, reduced GDP and weak manufacturing. Globally demand for oil is low. But the Fund Managers won't let the fundamentals of supply and demand kick in because if they do, they won't hit their three-monthly profit targets. This market rigging keeps slowing the economic recovery down because artificially high fuel prices hold back growth and put unnecessary costs into the supply chain. As soon as parts of the economy start to pick up, the Fund Managers rig oil prices up again and global growth automatically slows.
Over the last five years the amount of oil supply in the world hasn't really changed, but the price has bounced between $60 and $145. That epic volatility is due in most part not to the vagaries of supply and demand, but to market rigging. This is long-running scandal that makes Libor Gate look about as serious as someone playing hopscotch in a cathedral. The oil market is being artificially controlled by Fund Managers and their reprehensible business model is gradually draining the resources of companies and consumers all over the world and threatening the economic recovery.
We need a root and branch investigation into this dark and shadowy market and its official regulators need to consider that Fund Managers should actually take delivery of the oil they buy after a few days and not deliberately sit on it for three long months, so they can force the prices up. We need stable oil prices and without them our economy won't recover. Instead of tinkering with interest rates the Bank of England and the government should force a major investigation into the role of Fund Managers and the oil future market. If they don't they'll just be allowing one of the world's most serious and blatant forms of financial skulduggery to continue completely unchecked.