Oil market collapse waiting to happen
By Chris Cook
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After a phenomenal "spike" in oil prices to US$147 per barrel, the price has declined to just over $90. In the US this led to a "spike" to $4 per gallon of gasoline and placed energy prices right at the top of the US political agenda. Moreover, this political interest rapidly crossed the Atlantic since British trading of US contracts was believed to be instrumental in a speculative oil market price "bubble".
In view of my background in energy markets - I was for several years director of compliance and market supervision at the International Petroleum Exchange (which is now ICE Futures Europe) - I was asked recently by the British parliament's Treasury Select Committee to give evidence to them in relation to regulation of oil markets. Such an inquiry is a new direction for the committee, and following this initial hearing they decided to commence a full-blown Inquiry - in the finest US tradition - in October.
I told the committee - and their subsequent initial questioning that day of British regulators implied that my message was understood - that to follow the US approach to regulation of oil futures markets would be to try and solve today's problems with yesterday's tools.
The New York Mercantile Exchange (NYMEX) West Texas Intermediate (WTI) crude oil market price has become almost entirely irrelevant in the real world of physical and forward oil trading, which largely takes place, believe it or not, in Yahoo chat rooms. While NYMEX members still provide a massive pool of trading capital or "liquidity", the inconvenient truth is that oil market pricing power has moved across the Atlantic to the price of North Sea crude oil..>
http://www.atimes.com/atimes/Global_Economy/JI19Dj02.html