Schröder Takes On Oil Speculators
July 5, 2005
Chancellor Gerhard Schröder has turned his focus on speculators bidding on futures, saying that they are largely to blame for current oil-price rises. So at the G8 summit in Scotland this week, he is set to present a plan mandating transparency on oil markets, making it harder for speculators to gouge the price.
One of Germany's points of criticism is the limitations of the Joint Oil Data Initiative, a database where all information on production volume, reserves and international demand is recorded. The initiative was set up in 2001 by seven international organizations, including the United Nations and OPEC, and all key consumer and supplier nations are members.
The German government says that the data initiative doesn't go far enough in discouraging speculators, who they accuse of a lack of interest in the commodity itself but instead are only interested in making a fast buck.
Just window dressing
But the database is probably the reason international oil corporations don't complain about a lack of oil market transparency. Instead, they accuse Schröder of rhetoric and say the only way to counter speculators is to abolish commodities exchanges altogether.
"Remarks by the German government to the effect that speculators need to be curbed, or whatever they like to call it, appear to be nothing more than political posturing," according to Barbara Meyer-Bukow of the Association of the German Petroleum Industry. "That is because the market is already a very open, transparent market. And I really don't know how they propose to curb speculation without some type of regulatory interference in this market, which would have more of a negative effect."
Eager to help German carmakers -- who are the hardest hit by oil price rises as they are most exposed to fluctuations in demand -- Schröder appears to be on a personal crusade against speculators. But his push for more oil market transparency met with no success at last year's G8 summit in the United States. That was probably because the group includes the world's number two oil supplier, Russia, which has no interest in controlling crude prices.
25 percent mark-up
No one can say for certain whether speculators really drive the price of oil higher. The German government says oil would be 25 percent cheaper if it weren't for speculators. But oil market experts deny that speculators exercise a long-term influence.
"So-called speculators on the oil exchanges are by no means the root of the problem of today's high oil prices," said Enno Harks of the German Institute for International and Security Affairs (SWP). "It is true that there is speculation amounting to several dollars during the course of a day, hours and minutes, but it will not keep up the price of oil over the space of days, weeks and months. That would contradict all aspects of market logic."
Many experts blame the high price on China's growing thirst for oil. The country currently imports 2.5 million barrels a day. Analysts expect that figure to double by the year 2010.
Still, the United States remains the world's biggest oil guzzler. With about 20 million barrels a day, it imports nearly three times as much as China.
The continued threat of a terrorist attack disrupting supply in key regions like Iraq also keeps the price of oil high. Damage to pipelines or supply facilities can quickly lead to shortages and price hikes.
No threat yet
There's no threat to international supply yet. But most countries are pumping to capacity, leaving little room to maneuver. OPEC is expected to increase its daily output quota by half a million barrels. But with a worldwide demand of 80 million barrels a day, analysts say the move would be merely symbolic. No one expects prices to drop anytime soon.
"These high prices have given the market a clear signal to invest more, so that in the mid-term, one can expect greater spare capacities will drive the price down again," said Meyer-Bukow.
Chancellor Schröder can't afford to wait. With early elections likely in the autumn, he wants to be seen doing something about high oil prices now even if he has little leverage against supplier countries like Saudi Arabia, say experts.