There is increasing talk and criticism on the role speculation plays in the oil markets, whenever prices rise, as is the case at present. Repeated statements by officials in OPEC and other oil-exporting countries have reiterated the role of speculation in pushing prices up, or in other words, that market fundamentals such as supply and demand do not indicate that prices should be at their current high levels. Hence, it may be inferred that it is speculation that is causing high prices. Speculation, like it or not, is a cornerstone of the oil marketing and pricing process at present. It is part and parcel of the globalization regime, and hence, talk about abolishing or eliminating speculation is specious at best. Instead, it is imperative to learn how to curb the effects of speculation though the oil policies of OPEC member states, or through media policies and press leaks by OPEC's delegations, which normally either refrain from making any statements on any second-guessing regarding OPEC's ministerial meetings, or send ambivalent or ambiguous messages about the results of said meetings. This confuses speculators and slightly discourages them from speculating on oil shortly before OPEC's ministerial meetings, as is the case at present prior to the upcoming ministerial meeting which will convene in the next few days. Of course, press leaks cannot end speculation, but they can confuse speculators and push them slightly away from this arena for fear of incurring major losses, which would mean that their influence on prices becomes limited as a result. The influence of speculation and its importance is largely due to the influx of huge amounts of money and investments and the role of speculation on influencing commodities such as crude oil. Speculation today, especially speculation in the futures markets, involves amounts that are tens of times more than the actual quantities of crude oil sold by OPEC countries daily. Speculation on futures secure supplies to oil refinery owners at a later time and at fixed prices, commensurate with the prices they specify themselves to local consumers. This type of speculation is legitimate and useful for the stability of the markets. However, there are other types of speculation which attempt to create imbalance in supplies by purchasing large quantities of oil, monopolizing them and storing them until they are sold again in the markets in a sudden manner, i.e. dumping supplies in the markets. This is with the aim of pushing prices to collapse and make profits from the price difference this monopoly creates. Inducing such confusion in the markets aims to reap quick and large profits. And this is in fact the primary focus of criticisms by OPEC ministers, who call for an end to such practices. However, the problem here lies in the difficulty of ascertaining whether these monopolistic practices are carried out in a legal manner, let alone securing convictions against those responsible for this manipulation in the competent courts. With gasoline prices in the United States rising to about four dollars per gallon recently, some Congressmen tackled the issue of the role of speculation in pushing prices up, especially as crude oil and gasoline commercial inventory levels in the United States have been adequate. This means that there is no obvious cause for the rise in gasoline prices. The Congressmen asked the U.S. Commodity Futures Trading Commission, which is in charge of overseeing and regulating the trade of commodities in the United States, to investigate. It is noteworthy that the Commission recently accused officials in an international oil company based in London, Arcadia Energy, of manipulating and monopolizing oil supplies twice in 2008, in order to inflate crude oil prices in an illegitimate manner by purchasing large quantities of crude oil and storing them for the purposes of monopoly and manipulation of the markets. The Commission holds that these two incidences of monopoly and manipulation made a profit of 50 million dollars. The accusation made is “manipulating the oil markets” by purchasing large quantities of crude oil futures and then selling them quickly over a short period of time. However, the biggest problem faced by this governmental agency lies in the difficulty of proving these charges of ‘manipulation' and ‘monopoly' in the courts, despite the existence of laws that prohibit monopoly. Naturally, the company in question rejected the allegations and resolved to defend itself in court. The Commission's problem lies then in proving that the purchase of large quantities of crude oil was for “monopolistic purposes”, and subsequently, proving that the prices ensuing from the manipulation of the markets are ‘artificial' and ‘inflated' prices, and are thus not typical. Both counts are hard to prove, as there are many factors and parameters influencing oil markets and prices simultaneously. These days, for example, the markets are being affected by the closure of the most important Canadian crude oil export pipeline to the United States, which has a capacity of 600 kb/day, in addition to the escalating violence in Yemen, and fears of rising al-Qaeda influence there and the risks this poses to the GCC countries in the future. This is not to mention increased incidents of piracy in the Indian Ocean, initiated by Somali gangs, and the repercussions of the developments in Yemen over the safe passage of vessels through the Bab al-Mandeb Strait. These are some examples of the intertwined factors that govern crude oil prices these days, if the legal action were to involve a present case for instance. The affirmations of OPEC ministers regarding the danger of speculation on rising prices and on creating an artificial price range stem from this background, i.e. through its awareness of reports in the markets regarding the presence of monopolistic speculation or speculation aimed at manipulating the markets. But once again, the difficulty lies in proving accusations against certain traders of carrying out these practices or summoning them to court, or even proving manipulation before the competent courts. For this reason, the officials' insinuations remain general and non-specific. *. Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
