4 September 2013, 20:25

Syria crisis artificially hyped to keep global oil prices up - expert

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Global equity markets are still shaking with the prospect of a possible attack on Syria. This has significantly pushed up the global oil prices. This week US oil prices hit a two-year high. To find out more on what an attack on Syria might mean for global crude oil prices the Voice of Russia contacted Mr. Chris Cook, a Former Director of the International Petroleum Exchange and now a Senior Research Fellow at the Institute for Security and Resilience Studies.

Good day to you Mr. Cook. How are you?

Hello! Thank you very much.

What do you think keeps the oil prices on an upward trend? Is it all about Syria’s location, just because it is so close to key oil pipelines? There might be a danger of supply disruptions or what is going on here?

I’m afraid I’m something of a contrarian on this. I think that the market is in fact oversupplied. I think that what we are seeing here is hype in relation to a country which actually isn’t exporting any oil at all. It produces maybe 50 000 barrels a day now and it consumes that internally. I don’t think there is any prospect that the Iranians will intervene in any way. In fact, I think that they have their own problems, if I can put it like that.

And I think the whole thing is being hyped. I think every bit of news in the market, Libya is another one, is being hyped to keep the oil price supported. Because what are we seeing as a bigger picture? We are actually seeing the definancialisation of the oil market. The oil market has beeen financialised for several years and we’ve been seeing the funds, which have been in that market, flowing out into equity markets, into buy-to-let and other asset classes. And this, having certain consequences on the market, this is not widely perceived.

But I believe that we are actually seeing a false market, that the oil price has been essentially driven up by hype, mainly. There is no fundamental reason in my analysis why the oil price should be as high as it is. And I think it is based on hype.

Okay. So, following your suggestion, if we look back – when there is the threat of trouble in the Middle East, the price of oil usually starts to climb. And then the price comes back to the starting level. So, some say that the prices tend to grow because of fear only? Do you agree with that, partly?

I think there is definitely an element of risk premium. But what we saw, for instance, going back a couple of years, there was a demand shock in Fukushima. The nuclear power was switched off and they needed a great deal of carbon fuel rapidly. That was a demand shock. There was also a supply shock when Libya went completely out of the market almost overnight. And those shocks definitely led to physical hedging on the buy side.

So, it wasn’t so much a financial demand. Yes, the speculators came on board. But I don’t believe we are actually seeing that much of a speculation here. There obviously is some, but I think there are underlying forces which are not widely understood as to what’s been going on in the oil market over the last four years.

All right! I’ve got the last question for you. There are some experts who think in a bit of a different direction. They say that it is possible that this unrest in Syria could actually give a chance to Saudi Arabia to increase its oil production and become a more important global player. Do you think that might be possible?

No. I think the Saudis are producing as much as they can. I think virtually everything that comes from the Saudis is not entirely believable. They are talking their book. Most commentators on the market are talking their book. The financial services providers have a certain reason to saying what they do. I’m relatively unusual. I like to think I’m quite neutral in what I say. But I’m afraid, what we’ve seen is that markets have become financialised and the financial operators in the market have a particular reason to saying the things they do.

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