Boiling point

摘要

There is an assumption that rising world demand is responsible for the rapid rises in the price of oil in the past 12 to 18 months. It's easy to picture millions of new motorists in China and Russia filling up their new cars, adding to the pressure on supply.rnThere's a flaw in this theory, however. Global demand for oil has increased steadily by around one per cent a year for the past five years. A crunch between supply and demand is not due until 2010.rnThe reasons for the price rises are more complex. Speculation in oil futures could be partly to blame. When reports say oil is $147 a barrel, this is what the futures exchange says a barrel will cost next month. Futures contracts allow producers and consumers to pre-book the oil they'll need. Like any market, some speculation is natural. But whereas in the past it constituted around a third of the trade with the remaining two thirds commercial, some US reports indicate that the balance has now swung the other way.rnWith an estimated 70 per cent of the market speculative, it is hard to believe that it can reflect economic fundamentals. And as we know from the internet and housing bubbles, when markets become too far removed from the real economy, they risk collapse. Arresting this must be a priority for regulators.