While a palpable and collective sigh of relief was clearlyheard from the air industry when oil recently settled atUS$115 per barrel, the debate of the role of speculatorscontinues to rage.
A recent Washington Post article reported that as much as 80 per cent of oil contractson the New York futures market are held by speculators. At one point in July a single non-US energy trading firm reportedly held 11 per cent of all regulated NYMEX oil futurescontracts, the paper said.
The 80 per cent figure has since been disputed by the US Commodity Futures TradingCommission, who said the correct figure was around 50 per cent. But does it reallymatter?
Calls to regulate these speculators is surely misguided and wholly impractical. Thefutures market plays a crucial role as virtually the only mechanism for setting globalbenchmark prices for oil. It is somewhat transparent because the trading activity is publiclyavailable.
While the vast majority of oil deals are privately conducted, the very fact they are privatemeans it is impossible to establish a benchmark price. And how to differentiate betweentrades that are intended for commercial hedging versus those aimed at making a quickbuck, or millions as the case may be. It’s all a bit hypocritical anyway.
The so-called ‘legitimate’ players acting on behalf of airlines who are hedging to mitigate risk,are using the same mechanism and playing the same game as the sinister speculators.
And lets be honest about this, isn’t this a fundamental aspect of the capitalist free marketsystem? Besides, speculators also play a key role, by adding liquidity to the market. Sureprice distortions can result, but this gives others opportunities to sell at inflated prices orbuy at undervalued prices.
The answer to this conundrum is elusive to say the least, but the one thing that isclear, is that as long as humanity is addicted to this black gold, there’s always going to bea problem.