Wednesday, May 28, 2008

Who to blame for high oil prices?

There is no doubt that the high price of oil has become a major topic of conversation in the political halls of power, so it is no surprise that the UK's financial bosses - ex-Exchequor Brown and Exchequor Darling - are to meet with oil industry chiefs.  This will be interpreted by a lazy media as the 'right thing to do' which is, of course what Brown and Darling want lay people to believe.

The truth is the oil industry is virtually helpless in the face of global economic events.  Crude oil is a commodity and as such is traded on commodity markets by people who we should refer to as "middle men".  Oil traders are an interesting breed.  They don't find much oil (though they do invest in a few petroleum licenses these days).  The situation really isn't very different from commodity buying in wheat and corn where the stocks are available but buyers' demand is higher than supply.  Note my use of the term "buyers' demand".  This is not necessarily the same as end-users' demand.  And that's the problem that isn't being addressed.

I wonder how many commodity traders make big contributions to politicians?  Just a thought!