Supply Excellence — Speculating on Oil Regulation

Speculating on Oil Regulation

June 23rd, 2008 · by Bob Zieger · No Comments · oil/energy, supply management

In an effort to cool rising gas prices last week, Congressional regulators took steps to curtail overseas oil speculators. The move will force some overseas exchanges, which trade US oil, to share data on a daily basis and report any violations to authorities. The AP video report on the move is here:

The problem is, regulators are speculating about the role of speculators. It’s nearly impossible to quantify how much of a role speculation has played in rising oil prices. In fact, Senator Byron Dorgan went so far as to say regulators have a very poor understanding of futures markets and therefore “wouldn’t have a clue if there is excessive speculation in the markets.”

As we’ve discussed here before, the value of the US dollar plays a large and tangible role in the price of oil. And while speculation may play a part, the low dollar value trumps it as a key factor. So if the US government truly wants to pull a lever that could lower oil prices, it should come from the Federal Reserve. Keeping interest rates low during a time of inflation only exacerbates the problem. Therefore raising rates is much more likely to slow the rise in oil than trying to regulate speculation, a much more nebulous variable.

The bottom line is, these regulations amount to a Band-Aid on an energy policy wound that needs a tourniquet. It certainly won’t solve the problem and it won’t come close to making up for decades of questionable energy policy that helped to create the current mess.

Bob Zieger is a Category Manager for Plastics and Raw Materials in Ariba’s Global Sourcing Organization. Bob holds a MBA from Katz Graduate School of Business at the University of Pittsburgh and spent 11 years in the plastics industry in engineering and sourcing roles. He is also a Certified Purchasing Manager (C.P.M.) as recognized by the Institute for Supply Management.

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