The Great Debate UK
Don’t just blame oil traders for the manipulation of oil prices
–Kathleen Brooks is research director at forex.com. The opinions expressed are her own.–
The oil market is about to face one of the largest probes in years, following the EU announcing that it is investigating some major players like Shell and BP for price fixing. The probe concerns the way that large oil companies submit prices to Platts, the independent oil pricing service, which publishes prices for oil benchmarks like Brent.
The concern is that oil traders have been reporting prices that are higher than what they are actually selling oil for, in order to push up the price and cream the profits. This might all sound similar to those who followed the Libor fixing scandal that saw the end of Bob Diamond’s career at Barclays and global condemnation of bankers who set benchmark interest rates at levels that suited them, rather than the consumer.
So could this be a case of greedy traders pushing up prices that we, the consumer, have to pay at the pump? Could it be the actions of a few crude desks around the globe that may have pushed up UK inflation, which then limited the amount of stimulus the Bank of England has been willing to feed into the UK economy?
Iran is using oil to find gaps in international sanctions
By Kristen Silverberg and Dr August Hanning. The opinions expressed are their own.
The case of Standard Chartered Bank has demonstrated that there are still gaps in the international sanctions regime concerning Iran. In the financial sector, the existing regime can be improved. However, the European sanctions targeting the Iranian oil and gas sector also have significant weaknesses. It is necessary to identify these weaknesses and to close them as quickly as possible.
A global bright spot: Sub-Saharan Africa
By Kathleen Brooks. The opinions expressed are her own.
For the last three years talk about the global economy has been decidedly negative. Firstly there was the sub-prime housing crisis in the U.S., then the sovereign debt crisis, now we wonder whether the euro will survive and whether China will suffer a “hard” economic landing.
But amidst all of this doom and gloom, there seems to be a bright spot: Sub-Saharan Africa. For the bulk of the last thirty years the focus has been on famine, civil war or piracy, which has left a decidedly negative impression of the continent. However, in recent weeks there has been a growing number of optimistic reports about Africa, with some even thinking it could continue to grow while the rest of the world stagnates.
from Breakingviews:
End game in Libya could herald oil slump
By Una Galani
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
The end game in Libya could herald an oil price slump. Like the rebel advance into Tripoli, Libyan supplies to the global market could come sooner than expected. Brent has slipped by almost $3 to almost $106 per barrel in a matter of hours. A resolution in Libya, coupled with concerns over global growth, means tight markets could soon look oversupplied.
from Breakingviews:
Will the real price of oil please stand up?
By Christopher Swann
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Oil is a quintessential global commodity. But the price of the black stuff has got harder to grasp thanks to the gap between the two main benchmarks -- Brent and WTI. Contrary to market expectations, this gap could widen over the coming year as ever more U.S. crude is stranded at home. This will delight U.S refiners. Questioning about the true price of oil, however, could get louder.
from Breakingviews:
Oil crash shows investors still trust flawed model
By Peter Thal Larsen
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
LONDON -- Are oil investors clinging to flawed financial models? That's the strong impression given by last week's sharp oil price drop. If market movements followed a normal distribution, such a plunge would be extremely surprising. But what's really astonishing is that investors still appear to be relying on risk management techniques that were comprehensively rubbished by the credit crisis.
from Breakingviews:
Saudi handouts ratchet up “fair price” of oil
By Una Galani
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
DUBAI -- Saudi Arabia's rulers have long thought they could tell what a "fair" oil price should be. Prior to the heightening unrest on its own borders, the Kingdom reiterated its long-held view that this was somewhere between $70 and $80 per barrel. But the recent pledge for a massive boost to spending on everything from housing to religious police is pushing Saudi into its largest budget spending. No wonder the Kingdom now thinks the market is "oversupplied". "Fair" looks set to become more expensive.
Tide turns against nuclear energy
By Kathleen Brooks. The opinions expressed are her own.
As the nuclear threat in Japan steps up a gear, global politicians have pre-empted a wave of anti-atomic feeling from their public and spoken out against nuclear reactors, which threatens its future as a viable alternative to oil.
As Japan has found out with devastating consequences when things go wrong with atomic energy the effect is both devastating and immediate. Unlike carbon fuels, which have a lagged detrimental effect on the atmosphere, a nuclear accident doesn’t get worse in increments – once radioactive material is released into the atmosphere the damage to the surrounding areas is done.
Don’t blame politicians for pragmatic foreign ties
By Laurence Copeland
There are times when even a cynic like me has to feel some sympathy for politicians. Take the case of Libya, for example. Over the forty years of Muammar Gaddafi’s regime, relations between Britain (and our Western allies) and Libya have varied from lukewarm to cold and back to lukewarm again.
Now that this particular dictator appears to have reached the end of the road, some people are asking why the previous Government ever allowed our relations to rise above freezing point, which sounds rather as though they are trying to resurrect our long-dead (and possibly mythical) Ethical Foreign Policy. Is that feasible?
Did the Fed catastrophically mis-time QE2?
The sternest criticism of QE2 is the way it pumped up asset prices like commodities in recent months without making much of an impact on U.S. economic growth. Rising fuel and food costs have weighed on inflation everywhere from emerging markets to the UK. But this criticism might step up a gear if Middle East tensions lead to a spike in oil prices and the Fed tries to protect growth using a similarly blunt tool as QE2.
The political crisis in the Middle East has been the game-changer for the global economic outlook in the past couple of weeks. In just five days WTI oil (U.S. crude) jumped $10, and Brent (European oil) surged to within touching distance of $120 per barrel. This showed us what fear is like: since the 1970’s each recession has been preceded by an oil price shock. You don’t need much more evidence than this to see the extremely close relationship between oil and growth especially in the U.S., the largest consumer of crude in the world.
