Several weeks ago Brent Crude hit $115. This was, anxious voices assured us, because of Isis invading Iraq and concerns over the security of those all important oil fields. Commodity traders bet on higher prices and future shortages, steadily pushing prices up. A day later saner voices said that actually those all important oil fields in Iraq aren't being threatened at all because they're on the other side of the country far away from the current hostilities and well protected. Within hours the price of Brent Crude slipped back and as I write its at its lowest for two months at $106 a barrel. Now forgive me if I sound simplistic here, but it looks like that spike in price of $9 was created by market misinformation. Ill-informed commentators spooked the market and even more ill-informed hedge funds and pension managers pushed prices up. It took expert analysts and credible comment to bring prices down. Is this really how the oil market works? Do we have to pay an extra 3 pence a litre on our fuel because somebody doesn't understand the geography of Iraq? Did somebody not look at a map? Can a $9 spike in oil prices really be caused by a few people crying Wolf?
If this indeed is what happened, then governments and regulators in the UK and US need to look at this fast. The damage this sort of misunderstanding of geopolitical events can cause to our economies is huge. And, as far as I can see, there's no checking mechanism. If one oil trading desk says oil supplies are under threat, the rest seem to react like Pavlov's Dogs and prices automatically soar. That's not the way mature and sophisticated markets should work. Or am I just an idealist? When isolated market comment has no bearing on the facts it shouldn't be allowed to move prices. There should always be some credible voice of reason to protect us all from needless spikes and rises caused by crap information.
And here's another aberration in the oil market. A few short weeks on from all that talk of shortages and security of supply we now have a situation where market commentators are talking of over supply. Apparently Libya's largest oil field has resumed production after a four month strike and there are 'continuing concerns about oversupply'. Does a single oil field really make that much difference to the market? Or is this another example of misinformation? Looking at oil trading activity over the last few days the over supply rumour has certainly had an effect. Because the Commodities Futures Trading Commission report that a lot of hedge and pension funds have changed their positions. Previously there were 18,545 bets on oil prices rising, now there are 7,237 bets on oil prices falling. And yes, gentle reader, it does all sound like a casino with impulsive bets being placed on a whim.
Why this market is so obviously unregulated and so clearly open to abuse and mismanagement is one of our greatest economic mysteries. One thing's for sure though, if we let these commodity price gamblers carry on unchecked, we'll be back to 2008 all over again.
These are the reasons why you must get all your friends, colleagues and family to sign up to www.fairfueluk.com
as we are the ones with your backing to get that full and transparent enquiry into how the fuel 32 million road users put into their tanks is priced.