The incident comes at a time where many analysts, such as Deutsche Bank and well, me, believe that oil prices are divorced from basic supply and demand factors. If oil remains near $65 a barrel in a weak economic environment, and analysts have trouble ascertaining why, such stories and follow-up investigations into the role that energy traders play will likely become bigger press events.
The oil market is very complex (read: opaque). Its dominated by traders and very large companies, often state-owned. Other commodity markets, such as wheat and rice, also share some similar characteristics. When prices remain unexplainably high, conspiracies – some of them true – take hold and consumers will push for government action.
Today, the Commodity Futures Trading Commission (CFTC), the regulator of commodity markets in the US, is set to propose regulations aimed at curbing speculation by requiring firms to report their holdings and limiting the amount firms may invest in certain markets. Their goal is to reduce volatility and the influence of individual firms in controlling commodity prices. Although CFTC’s actions may curb the action of some US firms, it is just the start of the debate.