OPEC to Call for Regulation of Oil Speculators at Next Meeting

The nation’s oil refineries are loading up with inventory. (image: gasprices-usa.com)

It was only a few months ago that crude oil was trading at $33 a barrel. But prices have quickly climbed, closing on Friday at $58 a barrel.

Normally, one would expect prices to rise due to that age-old Economics 101 lesson known as supply and demand. But that is not the case with the recent spike in prices. The Energy Information Agency reports strong crude oil inventories. There are over 375 million barrels of oil in stock, upping the supply of oil 17% from this time last year. Consumption of oil, however, has dropped by close to 8% from last year, due to the worldwide recession.The rising crude oil costs are due to speculators, who see a sunny economic picture in their crystal balls. One energy industry expert told Bloomberg.com: “We are seeing exuberance about the economy bleed into a number of markets. The apparent bottoming out of the economy is more important than the oil supply and demand numbers.”
However, not all are convinced that we’re out of the woods quite yet. Another energy industry expert, also quoted by Bloomberg.com, took the opposite stance: “There is a total disconnect from the fundamentals, which are bearish. At some point the market fundamentals are going to have to weigh in and there will be a correction.”

The conflicting views on which way the price of crude oil is headed has led to price volatility. Prices quickly dropped from the near $150/barrel price of last year. But they’ve once again spiked. There’s great confusion in the marketplace, and no one can accurately say where the oil market is headed.

And it also has political ramifications.

OPEC is incredibly concerned about the price volatility. When oil was at its all-time high, OPEC nations had great incentive to develop projects to increase production. But as the price of crude oil rapidly fell, the need for these projects has diminished. And this has caused consternation among OPEC’s leadership; no one knows what the next step should be.
Saudi Aramco, Saudi Arabia’s state-owned oil behemoth, will spend $60 billion over the next five years on various oil projects. But Kuwait has decided to scrap its plans to build a new refinery and has also backed out of a joint-venture with Dow Chemicals.

Due to the price volatility, some members of OPEC want strict regulations placed on speculators, and will address the issue at its next meeting in May.  Said Iran’s deputy oil minister, “In order to achieve a stable oil market, the influence of excessive speculative activities in the oil exchanges, which lead to price volatility, should be limited through more regulation and control.”

Stay tuned, everyone.