A strike at speculators sounds an attractive proposition to oil consumers – which means everyone who drives a car, uses public transport or pays higher prices on a wide range of goods because of the increased costs along the production and logistics chain.
Shockwaves washed through the global oil market last week after the International Energy Agency (IEA) decided to release 60 million more barrels of oil into the market over 30 days.
It cited concern over Libyan supplies but analysts dismiss this explanation. The strategic reserves are intended for emergencies and this is the first time the 28-member agency has acted for so trivial a reason.
On previous occasions, the emergency release came when supplies were in danger: in 1991, in response to the first invasion of Iraq; and in 2005 after Hurricane Katrina cut oil supplies from the Gulf of Mexico.
And, despite a number of other occasions when supply was disrupted, the IEA failed to act in the intervening years.
The agency presumably saw the threat of high oil prices to the slowing global economy as a greater cause for concern. The general view is that last week’s decision is an attempt to blow speculators out of the water. They are seen as driving up the price beyond the level consistent with supply and demand.
After the latest news, traders with long positions in oil will feel at risk and many have obviously acted on their fears. Brent crude fell from $114 (R787) a barrel to $108 when the announcement came on Thursday. And, on Friday, it fell below $106.
This has been a blessed relief to consumers. But the IEA move has been criticised for distorting markets and masking price signals, which provide vital information on what is happening in the global economy.
The reality is that global oil supplies are ultimately limited and demand is apparently infinite, as more and more economies graduate up the income scale.
So the world has to find economic and accessible substitutes for oil if it is to avoid a return to 19th century industry.
On the other hand speculation is not a reflection of underlying supply and demand. And it is tempting for authorities to try to curb it.
The IEA was established in 1974 to look to the interests of oil consumers, after Opec set itself up as a cartel of oil exporters and oil prices quadrupled. But it has always acted with caution.
This could be about to change.
John Kemp, a Reuters market analyst, believes the agency’s move is a sign that it “will take a more active approach to managing the market than before, and introduces a new dynamic and source of uncertainty into oil prices”.
He noted that the IEA director for energy markets and security, Didier Houssin, told the US Senate in May 2009: “To use the reserves for price management is dangerous and would fail… a policy of releasing oil to counteract high prices would add an additional source for speculation.”
Recent events have clearly changed that view: a measure of the straits the global economy would be in if the recovery fails to regain momentum.
A number of highly indebted countries, including the US, desperately need economic growth so they can reduce the debt mountains they have accumulated over the past few years.
The IEA announcement came when the price was already sagging. That implies the market is vulnerable to a shake out. Keep your fingers crossed.