It's time something was done about the price of oil. It hit another record overnight – US$95 a barrel – and will likely reach US$100 a barrel before long. Everyone is paying more, from individuals fueling up their cars at the petrol station, to companies which need energy to operate their machines. Add taxes, and it's getting prohibitive. My gripe with this is not just that the price is high. Afterall, in a sense it is an affirmation that the economy is strong, and that demand from China will keep demand for Singapore products and services high, too. But my gripe is more targeted at the speculators, which are contributing to its rise. Imagine how much less we'd be paying if it weren't for the speculators. If it means that the speculators need to be weeded out, so be it.

It seems completely ridiculous that we're all paying more because a bunch of 20 or 30-something traders with a laptop and an interet connection are pushing up the price. The impact this has on people, particularly in developing markets not protected by subsidies, is unconscionable. Governments paying subsidies have less money to spend on essential services. All for what?! To fatten the trading account of some traders? Oh, please.

Quantifying the impact is difficult, but the Federal Reserve of St. Louis wrote the price would be US$10 to US$15 a barrel lower if it weren't for the speculators. It quoted acting OPEC Secretary General Maizar Rahman, who may very well be correct in his assessment, although we should keep in mind that he has a vested interest in blaming people other than the cartel's own members for the high prices.

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Still, it would be better for everyone if the price was US$80 to US$85 a barrel, or less. Think of the extra resources at the disposal of governments to build schools, hospitals, etc. Think of the additional disposable income you would have for food, school fees, and so on.

One counter-argument to lower prices might be that it reduces consumption. After all, all that oil that is burnt each day leaves significant traces in our atmosphere. The result: we're breathing in more polluted air, and paying more for the priviledge! But I am yet to see conclusive proof that the high prices have actually dampened consumption.

Another counter-argument could be that the higher the price of oil rises, the greater the impetus to find renewable energy sources. But again, the link is not conclusive.

So my view is, ways need to be found to keep speculators out of the market. We will all be better off for it.


Mark Laudi

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Labels: Alan Greenspan, crude oil prices, OPEC, speculators