Sky News business editor Michael Wilson

Where will it end? Any oil price I type here will be out of date by the time you read it. It’s that sort of a day and it’s that sort of a market. Pure speculation, and nothing to do with the world running out of oil. It will eventually, but not in the foreseeable future.

We are all victims of some of the worst excesses of the market. The oil price is being forced up by speculators who are testing just how far they can go. As the pump prices dance ever upwards it’s easy to feel the cold grip of panic – not to mention the hikes in all the other household bills.

I know there are supply problems and there’s always the usual suspects, China and India, whose demand appears insatiable. But their demand was similar six months ago, and then  the oil price was ‘only’ $90.

Unfortunately it has all the feel of a rapidly expanding bubble. The quoted oil price is for ‘forward delivery’ – and not the price for some oil delivered now, on a tanker of your choice. And it’s not just the speculators. Companies who are heavily fuel dependent, like airlines, are being advised to ‘buy forward’ to cover themselves. So this anxiety feeds into the price and up it goes as a self-fulfilling prophecy. 

And if you were in the happy position of owning a tanker full of sweetly refined oil, what would you do? Sell it now, or wait for the price to rise even further?  Correct.

So, as all bubbles burst, will this one? Most think not – it might deflate to around $100 a barrel, but that’s merely a guess.

Some think psychological warfare might help. Ian Henderson, fund manager at JP Morgan natural resources thinks that the US could tap its full strategic reserves, which would have the effect of lowering prices.

But how long would that last?  He still worries about the problems of a high oil price in developing countries. ‘It could cause mayhem. Taxi drivers unable to fill up for example – general social unrest.’ And this is all without mentioning the other serious concern, the explosion in the cost of basic foodstuffs.

Comments

[John Bournemouth 27 May 2008 17:39:47]

Why is it that fuel prices here are now possibly the most expensive in the world at near £1.30 lt Diesel, when in the USA it is only £0.46 a litre? We are definately being ripped off. This government could have easily reduced fuel prices by subsidy (like Northern Rock) and saved millions in inflation and stabilised the markets very easily. Trouble is we have a government made up of a mixture of Pinoccio and the wooden tops. You can lie to people some of the time but this big lie is wearing very thin now, obvious by the results of the Crewe by-election.

[Dennis, Cramlington Northumberland 26 May 2008 08:25:07]

On behalf of the Dick Dastardly (alias Robin Hood-Wink)& Co., I would like to put the blame for this crisis fairly and squarely where it belongs.

Clearly the selfish pensioner shareholders of Northern Rock have once again brought misery and grief to the whole nation.

They were just not content enough with their scurrilous gambling in the red-braces areas by holding their few (and only) shares in a great UK Bank for over 10 years - just to leave a little 'nest-egg' for their grandchildren (so they mostly say, ha ha!).

Not content either that they also pleaded that they were merely trying to ensure that their top-notch expensive and wasteful funeral arrangements were fully protected.

Now, they have, once again, tried to bring disgrace and panic on Hood-Wink & Co by using far too many barrels of oil in their motorised wheelchairs.

Disgraceful.

The taxpayer suffers once again.

I suggest that Dick & Co immediately seize all wheelchairs and zimmer frames, sell them off cheaply to a private investor friend in a couple of years time, and export these arrogant pensioners to work in the oil-fields somewhere over that way.

Who do think they are!
That will show them this Government means business, as usual.

The country can't afford to feed these people in any case, so there's a double saving!

Anyone reaching the age of say 60yrs should be allowed to be robbed and just slip away quietly at minimum risk to the taxpayer, without compensation of course.

Tough on pensioners, and the causes of pensioners! That's the way to go.

Alternatively, forward-buy as many of the old dears as possible - for cheapest prices - and then stock-pile them somewhere well away from shareholding.

At least it will make funerals cheaper.

[F.DRINKWATER Northwich 24 May 2008 12:42:06]

I have just been into Northwich were I see the local tesco has just put their deisel another 2pence alitre.As the price of oil has dropped 5 dollars who is making the big profits,the goverment or the oil companys

[Robert, Scotland 23 May 2008 18:06:44]

Governments may squeal about the current price of a barrel of oil and they will flail the "usual suspects", the OPEC Countries, for holding back on oil production, but the G7 Governments are complicit in what is happening on the World market today.
It is an interesting clash that was won last time round by the machiavellian minds of the G7 Governments. That will not happen this time, OPEC know that the reserves built up the last time they were asked to increase production to unnecessary levels was in time used against them to deflate oil prices for 10+ years.
They also remember their reward for that level of co-operation, an illegal war to give some of the G7 members control of a major middle east oil producer and no resolution of the Israeli/Palestine conflict.
Meanwhile the higher earnings and taxes allows the G7 Banks and Governments to get everyone of their Citizens to pay for their follies; "the credit crunch".

[purps, chelmsford 23 May 2008 11:45:46]

Rich, You are quite correct.

The world needs the G7 to intervene in the FX markets, a rising dollar would bring the price of crude oil back to $80 per barrel.

On my model I believe $80 is a sustainable price for a barrel would would also help lifet the gloom over the major economies.

[purps, chelmsford 23 May 2008 11:41:54]

I have never understood why Crude Oil could not be sold at a fixed price with an adjustment up or down every year.

Let us say the price is fixed at $75 per barrel for the next year for teh best cu=rude with a scale for the other crudes.
This would helo planners and the world deal with periods when the oil price goes higher, it would also helpo the oil producers in times of falling prices.

The producers could then give allocations to the West, East and others based on the previous 5-years purchases.

This would encourage other alternatives, it would be fair and transparent to all, and shipping resources could be matched to the schedule.

I would then ask the western governments and others to actually pay $80 dollars per barrel, giving the extra $5 per barrel to the aid and development agencies of the UN to look after the world's poor.
I believe we could all live with that.

[Khalid 22 May 2008 21:03:01]

Sir
Thus far as the price for this commodity and the world reliance upon it, it is of no great surprise that the price is rigged to suit many a pocket.
I agree with the culminations herein that were it not for prudent policy failures on a global scale, then we would all be enjoying a lower price for this muck than we are currently paying.
Politicans would naturally want us all to say well stop using it so as to please the many a green entity, however, not even they would be able to dig their way out of delivering life' essentials to areas however remote.
Recent debacles surounding the £2.7Bn found out of nowhere just about summise the practice of office before cuntry and if the world wants lowering and sustained economical prices, then they need not ask any taxing questions.
All in all, thus far as the question what would I do with a ship full of oil, I would certainly get rid of it soonest, so as to allow customer retention and a free flow of trade. But then again, who said the [Underworld] was'nt [Born Slippy]

[Tony, Yorkshire 22 May 2008 16:54:37]

Michael,

Yes oil prices rises as a result of demand/supply mis-alignments are unwelcome.

Of equal importance is how the issue is managed within each country to lessen the hardship on the Public.

Brown fails in this respect with ref to the UK consumer.

For example, the Treasury sets their budget income based on a pump price of about £1 per litre, so that Brown can put his 70p tax take into his coffers.

And yet when the pump price goes up to £1.35 per litre, his tax take is about £1 per litre.
ie the take is above budget.

Any reasonable minister with any concern for the People would fix the take at the budget amount and take steps to lessen the hardship on the People.

But Brown just gorges himself on his % increased £1 take and in effect says

'Forget the People - all I am interested in is the Money - not in helping the People'

He could limit his take to his budget amount thus reducing the increased petrol tax take to assist the hard presssed UK People.
But he isn't interested in the Hardship on the People.

He is like that 'I would love it, just love it...' Kevin Keegan remark.

'I love it, just love it when the price of oil goes up and the people have to pay more at the pump and I can rake in more tax
...love it, just love it'

Greedy, oh so Greedy.

[Rich, Warwickshire 22 May 2008 15:54:39]

The reason we're getting soaring oil prices, is because the Federal Reserve have been printing money like crazy to bail out the banks.

Where do people think all this "injected liquidity" is coming from?

They're printing billions of dollars, therefore it's not the cost of oil that's rising, its the purchasing power of the Dollar that's falling.

Do people really think that just in the last few months we've suddenly started using more oil, eating more food, using more gas & electric?

No, we're seeing inflation everywhere because the central banks are "socializing" the losses of the banks on every citizen in the world!