"Changes in production and consumption seem to fall short of a fully satisfactory explanation for the abrupt collapse in oil prices," said the BIS in its findings. The Swiss-based BIS, founded in 1930, was the world's first international financial organization to specialize in providing advisory services to central banks and international organizations on monetary and financial stability.
"Rather, the steepness of the price decline and very large day-to-day price changes are reminiscent of a financial asset. As with other financial assets, movements in the price of oil are driven by changes in expectations about future market conditions. In this respect, the recent OPEC decision not to cut production has been key to the fall in the oil price", the BIS report continued.
Consequently, a fall in the oil price is exacerbated by the necessity on the part of producers to continue high levels of production in order to maintain cash flow and service their debt, while the possibility of selling futures is a way for producers to hedge their exposure to volatile revenues. BIS also points to the rising role of intermediaries such as swap dealers when addressing the availability of liquidity for oil producers, and the influence of such investors' cyclical behavior.
Oil instrument broker PVM told the Financial Times on Saturday that the daily futures volume in oil has risen from 3.4 times global demand in 2005 to its current level of more than 20 times the global demand for oil.
Until last year's collapse, the price of oil had kept to a relatively stable level of around $100 per barrel since 2010. However, recent volatility has seen a drop of around 50 percent in its price since June, when Brent crude was selling for as much as $110 a barrel. In January the price dipped as low as $44 per barrel. According to data from Marketwatch, Brent crude is currently selling at $59.09 per barrel, following a volatile rebound at the beginning of this month which saw its price increase by 20 percent in just four days.