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By Samuel R. Avro on Jan 28, 2009 with no responses

OPEC Blames Speculators, Hedge Funds For Crude Oil’s Volatility


In what may be seen as a case of hypocrisy, the Organization of Petroleum Exporting Countries (OPEC) is laying the blame squarely on the shoulders of hedge funds and speculators for last year’s record run-up in crude oil prices.

The secretary-general of the oil cartel, which controls 40% of the world’s oil, said that his organization wants special trading rules to be instituted in order to “limit the level of speculation” in the oil futures markets.

The organization, which is made up of 12 member nations, routinely safeguards its interests with artificial means such as pulling supply from the market in an effort to boost prices to a level they deem fit.

Crude oil futures were trading at a record above $147 a barrel during July of last year.

With the extreme reverse in the trend of rising prices now bringing about oil in the $40 range, OPEC is upset at the speculators because they consider them to be the root of their problem.

“The speculators are still there,” Abdalla el-Badri told reporters today as he arrived in Davos, Switzerland, where he is attending this week’s World Economic Forum. “Before, they were playing a supply shortage, now they are playing too much supply. They are delaying a recovery in prices.”

Crude oil options traders on the floor of the New York Mercantile Exchange.

Crude oil traders on the floor of the New York Mercantile Exchange.

However, when prices were skyrocketing, OPEC didn’t seem bothered by the ongoing speculation in the commodities market which continued pushing the price higher during the summer of last year. Such behavior is likely to be seen as hypocrisy from a cartel that looks out for their own interests with supply manipulation by cutting production when the going gets rough.

“It’s a bit like DeBeers blaming female vanity for high diamond prices. There is truth in that statement as there is in OPEC’s position, but how can one regard any commentary from a “cartel” as anything but self-serving,” said Tom Kloza, chief oil analyst for the Oil Price Information Service.

“Truth is, that volatility and the froth of money chasing money helped OPEC as it tossed prices higher, and it’s probably damaged the cartel as it has created an overreaction to the downside,” Kloza said.