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Speculators are not to blame for oil, says IEA

Times Online
The Times
July 2, 2008

Speculators are not to blame for oil, says IEA

The oil market is tight and speculators are not to blame for the high price of crude, the International Energy Agency (IEA) said in a detailed criticism of the call for action against speculators in the crude oil futures market.

The oil price rose back above $142 a barrel yesterday amid fears about tight supply and possible armed conflict between Iran and Israel.

Light, sweet crude for August delivery rose $2.02 to trade at $142.02 a barrel in New York and Brent crude futures rose $2.27 to $142.10 in London.

The IEA said that rising demand in the emerging markets of Asia, Latin America and the Middle East and poor supply growth were the main reasons for the high price.

In its Medium-Term Oil Market Report, the agency predicted that global oil product demand would increase by 1.6 per cent per year over the next half-decade, but it has lowered its estimates for growth in non-Opec supplies of crude, because of project delays and a doubling in costs.

The IEA suggested that the attempt to blame speculators in the futures market was a result of consumer shock over oil prices. “Like alchemists looking for a way to turn basic elements into gold, everyone wants a simplistic explanation for high prices,” it said.

While recognising that speculation can have a day-to-day impact on crude prices, the IEA said that the underlying market told a different story.

“The fact that all producers are working flat out and that there is no sign of any abnormal stockbuild gives a strong indication that current oil prices are justified by fundamentals,” the IEA said.

Six factors were more important than investment flows in the price of crude: low spare capacity within Opec; geopolitical concerns, such as civil conflict in Nigeria and concerns over Iran; the expectation of rising prices because of concerns about peak oil and Chinese demand; rising oil industry costs; tight refining capacity; and stockbuilding by refiners seeking to lock in profits.

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article4251047.ece

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