05-27-2008, 12:46 AM
By Edmund Conway, Economics Editor
Last Updated: 12:53am BST 27/05/2008
Speculators are largely responsible for driving crude prices to their peaks in recent weeks and the record oil price now looks like a bubble, George Soros has warned.
The billionaire investor's comments came only days after the oil price soared to a record high of $135 a barrel amid speculation that crude could soon be catapulted towards the $200 mark.
In an interview with The Daily Telegraph, Mr Soros said that although the weak dollar, ebbing Middle Eastern supply and record Chinese demand could explain some of the increase in energy prices, the crude oil market had been significantly affected by speculation.
"Speculation... is increasingly affecting the price," he said. "The price has this parabolic shape which is characteristic of bubbles," he said.
The comments are significant, not only because Mr Soros is the world's most prominent hedge fund investor but also because many experts have claimed speculation is only a minor factor affecting crude prices.
Oil prices stalled on Friday after their biggest one-day jump since the first Gulf War earlier in the week.
advertisementAt just over $130 a barrel, the price has doubled in around a year, causing misery for motorists and businesses.
However, Mr Soros warned that the oil bubble would not burst until both the US and Britain were in recession, after which prices could fall dramatically.
"You can also anticipate that [the bubble] will eventually correct but that is unlikely to happen before the recession actually reduces the demand.
"The rise in the price of oil and food is going to weigh and aggravate the recession."
The Bank of England recently warned that soaring energy and food costs would push inflation above its target range for most of the next 18 months, making it more unlikely that it will cut borrowing costs soon.
Mr Soros warns Britain is facing its worst economic storm in living memory, dwarfing those of the 1970s and early 1990s, with a housing slump and serious recession.
He said: "The dislocations will be greater [than in the 1970s] because you also have the implications of the house price decline, which you didn't have in the 1970s."
The warning undermines predictions that Britain will suffer only a brief and relatively painless recession, unlike the precipitous dives of previous years.
Mr Soros also warned that the Bank's inflation report represents a "Faustian pact", obliging it to keep interest rates high to control inflation, even as the economy is starting to slump.
"You had the nice decade," he said. "Now that is over and you are in a straitjacket."
http://www.telegraph.co.uk/money/main.jh...ros126.xml
Germany in call for ban on oil speculation
By Ambrose Evans-Pritchard
Last Updated: 12:53am BST 27/05/2008
German leaders are to propose a worldwide ban on oil trading by speculators, blaming the latest spike in crude prices on manipulation by hedge funds.
It is the most drastic proposal to date amid escalating calls from Europe, the US and Asia for controls on market forces, underscoring the profound shift in the political climate since the credit crunch began. India has already suspended futures trading of five commodities.
Uwe Beckmeyer, transport chief for Germany's Social Democrats, said his party would call for joint measures by the G8 powers to prohibit leveraged trading on energy contracts. "It's an extreme step but it has to be done," he told the Berlin media.
Mr Beckmeyer said the last 25pc rise in the price of oil to $135 a barrel had nothing to do with underlying supply and demand. ââ¬ÅItââ¬â¢s pure speculation,ââ¬Â he said.
Oil has doubled in price over the past year and the concerns are echoed on Washingtonââ¬â¢s Capitol Hill where irate Democrats want rules compelling traders to take delivery of crude oil, a move which would paralyse the market.
advertisementThere is now broad support in Germany for a clampdown on ââ¬Ålocustââ¬Â funds. President Horst Köhler said modern capitalism had turned into a ââ¬Åmonsterââ¬Â, bringing the entire financial system to the brink of collapse this spring.
The Social Democrats form part of Chancellor Angela Merkelââ¬â¢s ruling coalition. Her own Christian Democrat Party shares concerns that funds are causing a fresh bubble in commodities, risking further havoc for the real economy and society.
In the long run, any scheme to ban futures trading would be extremely hard to enforce as the markets would tend to move offshore. Hedge funds are probably not the culprit in any case.
Speculators are split, with some betting that oil will fall. The mass of money coming into the commodity indexes is mostly from pension funds and long-term investors.
Oil markets are likely to shrug off the moves as political posturing, instead focusing on Norwayââ¬â¢s suspension of crude output at three platforms, cutting supply by 138,000 barrels a day.
The news comes as Lloydââ¬â¢s Marine Intelligence reported Opec oil shipments fell by 1m barrels per day in the four weeks to May 4, confirming suspicions that the market has been chronically short of supply.
http://www.telegraph.co.uk/money/main.jh...oil126.xml
Last Updated: 12:53am BST 27/05/2008
Speculators are largely responsible for driving crude prices to their peaks in recent weeks and the record oil price now looks like a bubble, George Soros has warned.
The billionaire investor's comments came only days after the oil price soared to a record high of $135 a barrel amid speculation that crude could soon be catapulted towards the $200 mark.
In an interview with The Daily Telegraph, Mr Soros said that although the weak dollar, ebbing Middle Eastern supply and record Chinese demand could explain some of the increase in energy prices, the crude oil market had been significantly affected by speculation.
"Speculation... is increasingly affecting the price," he said. "The price has this parabolic shape which is characteristic of bubbles," he said.
The comments are significant, not only because Mr Soros is the world's most prominent hedge fund investor but also because many experts have claimed speculation is only a minor factor affecting crude prices.
Oil prices stalled on Friday after their biggest one-day jump since the first Gulf War earlier in the week.
advertisementAt just over $130 a barrel, the price has doubled in around a year, causing misery for motorists and businesses.
However, Mr Soros warned that the oil bubble would not burst until both the US and Britain were in recession, after which prices could fall dramatically.
"You can also anticipate that [the bubble] will eventually correct but that is unlikely to happen before the recession actually reduces the demand.
"The rise in the price of oil and food is going to weigh and aggravate the recession."
The Bank of England recently warned that soaring energy and food costs would push inflation above its target range for most of the next 18 months, making it more unlikely that it will cut borrowing costs soon.
Mr Soros warns Britain is facing its worst economic storm in living memory, dwarfing those of the 1970s and early 1990s, with a housing slump and serious recession.
He said: "The dislocations will be greater [than in the 1970s] because you also have the implications of the house price decline, which you didn't have in the 1970s."
The warning undermines predictions that Britain will suffer only a brief and relatively painless recession, unlike the precipitous dives of previous years.
Mr Soros also warned that the Bank's inflation report represents a "Faustian pact", obliging it to keep interest rates high to control inflation, even as the economy is starting to slump.
"You had the nice decade," he said. "Now that is over and you are in a straitjacket."
http://www.telegraph.co.uk/money/main.jh...ros126.xml
Germany in call for ban on oil speculation
By Ambrose Evans-Pritchard
Last Updated: 12:53am BST 27/05/2008
German leaders are to propose a worldwide ban on oil trading by speculators, blaming the latest spike in crude prices on manipulation by hedge funds.
It is the most drastic proposal to date amid escalating calls from Europe, the US and Asia for controls on market forces, underscoring the profound shift in the political climate since the credit crunch began. India has already suspended futures trading of five commodities.
Uwe Beckmeyer, transport chief for Germany's Social Democrats, said his party would call for joint measures by the G8 powers to prohibit leveraged trading on energy contracts. "It's an extreme step but it has to be done," he told the Berlin media.
Mr Beckmeyer said the last 25pc rise in the price of oil to $135 a barrel had nothing to do with underlying supply and demand. ââ¬ÅItââ¬â¢s pure speculation,ââ¬Â he said.
Oil has doubled in price over the past year and the concerns are echoed on Washingtonââ¬â¢s Capitol Hill where irate Democrats want rules compelling traders to take delivery of crude oil, a move which would paralyse the market.
advertisementThere is now broad support in Germany for a clampdown on ââ¬Ålocustââ¬Â funds. President Horst Köhler said modern capitalism had turned into a ââ¬Åmonsterââ¬Â, bringing the entire financial system to the brink of collapse this spring.
The Social Democrats form part of Chancellor Angela Merkelââ¬â¢s ruling coalition. Her own Christian Democrat Party shares concerns that funds are causing a fresh bubble in commodities, risking further havoc for the real economy and society.
In the long run, any scheme to ban futures trading would be extremely hard to enforce as the markets would tend to move offshore. Hedge funds are probably not the culprit in any case.
Speculators are split, with some betting that oil will fall. The mass of money coming into the commodity indexes is mostly from pension funds and long-term investors.
Oil markets are likely to shrug off the moves as political posturing, instead focusing on Norwayââ¬â¢s suspension of crude output at three platforms, cutting supply by 138,000 barrels a day.
The news comes as Lloydââ¬â¢s Marine Intelligence reported Opec oil shipments fell by 1m barrels per day in the four weeks to May 4, confirming suspicions that the market has been chronically short of supply.
http://www.telegraph.co.uk/money/main.jh...oil126.xml
